ANNUAL REPORT 2017 REPORT ANNUAL A new future... A new

ALTERNATİF BANK ANNUAL REPORT 2017 T:+90 212 315 65 00 T:+90 www.alternatifbank.com.tr Cumhuriyet Cad. No:46 Şişli 34367 İstanbul No:46 Cad. Cumhuriyet This report has been published using recycled paper and environment-friendly technologies. This report has been published using recycled paper and environment-friendly ALTERNATİF BANK ANNUAL REPORT 2017 CONTENTS

PRESENTATION 04 Our Vision, Mission and Strategy 78 Internal Audit 06 Agenda for the Annual General Meeting 79 Summary Board of Directors Report Submitted to the 07 Shares, if any, Held in the Bank by the Chairman and Annual General Meeting Members of the Board Audit and Compliance Committee, 80 Organisational Structure Chief Executive Officer and Executive Vice Presidents 82 Explanations and Notes about the Bank’s Risk Group 08 Capital and Shareholder Structure 82 Dividend Policy 09 About the Commercial Bank (P.S.Q.C.), Which Owns 100% 83 Information on Donations Made in 2017 and on Expenses of Alternatif Bank Shares Incurred in the Scope of Corporate Social Responsibility 10 Alternatif Bank’s History & Market Position Projects 11 Financial Indicators 83 Remuneration Paid to the Board of Directors and Senior 12 Milestones in the History of Alternatif Bank Management 14 2017 Highlights 84 Managers of Internal Systems 16 Message from the Chairman 84 Affiliation Report 18 Message from the CEO 85 Outsourced Services Pursuant to the Regulation on Banks’ Procurement of Support Services 2017 ACTIVITIES 86 Annual Report Compliance Opinion 87 Statement of Responsibility for 2017 Annual Report 22 Corporate Banking 88 If an Extraordinary General Meeting was Held during the 28 Business Banking year, Information on the Meeting Date, Resolutions and 32 Affluent Banking Other Actions Taken in this Respect 34 Treasury Group 40 Financial Institutions FINANCIAL INFORMATION AND RISK MANAGEMENT 43 Operations 44 Human Resources 88 Financial Position, Profitability and Solvency 52 Information Technology 89 Evaluation of the Bank’s Capital Strength and Board of 57 Alternatif Bank’s Financial Subsidiaries Directors’ Assessments 89 Achievement of Targets Set in Previous Periods, MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES Implementation of Annual General Meeting Resolutions, Any Reasons for Failure to Meet Targets or Implement 58 Corporate Governance Resolutions and Assessments 63 Names, Terms of Office, Responsibilities, Educational 90 Information on Special and Public Audits during the Fiscal Year Backgrounds and Professional Experience of the Chairman 90 Administrative or Judicial Sanctions Imposed on the Bank and Members of the Board of Directors, Members of the and the Members of the Board of Directors due to Actions Board Audit and Compliance Committee, Chief Executive in Violation of Applicable Laws Officer, Executive Vice Presidents, and Managers of Internal 91 Lawsuits Filed against the Bank with a Potential Impact Systems Units on the Bank’s Financial Standing and Operations, and Their 65 Terms of Office and Professional Experience of External Possible Outcomes Auditors 91 Credit Ratings Assigned to Alternatif Bank and Related 66 Activities of the Board Credit Committee, Activities of the Explanations Committees Reporting to, or Set up to Assist the Board of 92 Financial Highlights and Key Ratios for the Five-Year Period Directors in the framework of Risk Management Systems under the Regulation on the Internal Systems of Banks; as well as Names and Principal Duties of the Chairmen and Members Serving on Such Committees 69 Information on Risk Management Policies Implemented according to Risk Types 72 Senior Management 76 Legislation and Compliance 77 Internal Control Always Advance Together...

In 2017, we finalised our merger with The Commercial Bank, which since 2013 has been accompanying us on our journey spanning 26 years. Being a wholly owned subsidiary of The Commercial Bank provides us with new collaboration opportunities.

As we look into the future with anticipation, we say it’s time for a change...

While we set bigger goals in both local and global banking, we are also renewing our corporate identity and our approach to banking. As we continue to operate under the name Alternatif Bank, we commit ourselves to listening, understanding our customers, and providing creative solutions...

Alternatif Bank takes a step into a new future in banking with the motto “Always Advance Together”. ALTERNATİF BANK ANNUAL REPORT 2017

OUR VISION, MISSION AND STRATEGY

OUR VISION OUR MISSION

TRANSFERRING KNOWLEDGE, COMPETENCE MAKING A DIFFERENCE IN THE BANKING AND CAPITAL, AND PROVIDING MORE INDUSTRY WITH OUR CONSULTING SERVICES, COMPREHENSIVE CONSULTING SERVICES TO “INSIGHTFUL APPROACH TO BANKING”, THE REAL SECTOR AND THE MANUFACTURING “SEAMLESS SERVICES”, AND TECHNOLOGY INDUSTRY IN TURKEY BY LEVERAGING THE INFRASTRUCTURE. SUPPORTING OUR EXPERTISE OF THE COMMERCIAL BANK... CUSTOMERS ON THEIR PATH TO GROWTH AND OFFERING THEM SOLUTIONS TAILORED TO THEIR NEEDS.

4 PRESENTATION

OUR STRATEGY

After three years of productive partnership, Qatar’s first private are determined services to share know-how, competence and bank, The Commercial Bank, became the sole shareholder of capital as we provide more consultancy to the real sector and our Bank at the end of 2016. First fruits are now harvested production. Whatever the scale or sector is, our doors are open from the transformation project that began with merger to any business that has dreams of growth, believes in a better between The Commercial Bank’s strong capital structure and future, and aims to increase its headcount and production international reputation and our Bank’s 26 years of experience. In volume. We will be a road companion to each of our customers the upcoming period we will take advantage of The Commercial on their business or trade journeys. And, we will grow all Bank’s know-how and make an effort to contribute to our together... common goals. We have identified the basic elements of our • Investing in Human Capital strategy that we have reshaped in line with these targets as follows; Investing in Human Capital, Customer Satisfaction • Customer Satisfaction with Seamless Service with Seamless Service, Effective Capital Management, Full • Effective Capital Management Compliance with Corporate Governance Principles, and Creative Innovation. From now on, the core of our corporate culture is • Compliance with Corporate Governance Principles to be “the bank of the insightful trader”. For the future, we • Creative Innovation

5 ALTERNATİF BANK ANNUAL REPORT 2017

AGENDA FOR THE ANNUAL GENERAL MEETING

1) Opening and formation of the presiding Board; authorising the presiding Board to sign the minutes of the Annual General Meeting,

2) Reading out and deliberation on the Board of Directors’ Annual Report for the fiscal year, External Auditor Reports and Balance Sheet and Profit/Loss Statements for 2017 Fiscal Year; decision on their approval,

3) Deliberation and decision on the Board of Directors proposal in relation to the Profit for 2017 Fiscal Year,

4) Approval of the members of the Board of Directors appointed due to the resignation of the Board of Directors members who were originally appointed at the previous year’s Annual General Meeting,

5) Release from liabilities of Board of Directors members who served during the fiscal period,

6) Determination of the number of Board of Directors members, their terms of office and their remuneration such as sitting fees and bonuses, and election of the members of Board of Directors,

7) Selection of the firm that will conduct the independent audit of the Bank,

8) Presentation of information to the shareholders on bonuses paid to the employees and other payments made in the same scope,

9) Presentation of information to the shareholders on donations made in 2017,

10) Authorising the Board of Directors to issue bonds and/or bank bills within legal limits in order to carry out relevant actions and procedures according to the circumstances of the day, and

11) Authorising the members of the Board of Directors, pursuant to Articles 395 and 396 of the Turkish Commercial Code no. 6102, to carry out the activities that fall under the Bank’s scope of activities, on their own or others’ behalf, to acquire interest in the companies engaged in such fields, and to carry out other such transactions.

6 PRESENTATION

SHARES, IF ANY, HELD IN THE BANK BY THE CHAIRMAN AND MEMBERS OF THE BOARD AUDIT AND COMPLIANCE COMMITTEE, CHIEF EXECUTIVE OFFICER AND EXECUTIVE VICE PRESIDENTS

INDIRECT SHARE TITLE NAME AREA OF RESPONSIBILITY CAPITAL (%) Chairman of the Board of Omer Hussain I H Alfardan - - Directors Chairman of Executive Committee of the Board, Chairman of Remuneration Committee of the Board, Vice Chairman Joseph Abraham Member of Board Risk Committee, - Member of Board Audit and Compliance Committee, and Alternate Member of Board Credit Committee Member of the Board of Fahad Abdulrahman Badar Member of Board Credit Committee - Directors Member of Executive Committee of the Board, Member of the Board of Izzat Dajani Member of Remuneration Committee of the Board, and - Directors Member of Board Audit and Compliance Committee Member of the Board of Mohd Ismail M. Mandani Chairman of Board Risk Committee - Directors Al-Emadi Member of the Board of Ali Saleh Al-Fadala Member of Board Risk Committee - Directors Member of the Board of Chairman of Board Credit Committee, and Turgay Gönensin - Directors Member of Executive Committee of the Board Chairman of Board Audit and Compliance Committee, Member of Executive Committee of the Board, Member of the Board of Zafer Kurtul Member of Remuneration Committee of the Board, - Directors Member of Board Risk Committee, and Alternate Member of Board Credit Committee Member of the Board of Member of Executive Committee of the Board, and Kaan Gür - Directors, CEO Member of Board Credit Committee Executive Vice Presidents Seher Demet Tanrıöver Çaldağ Risk Management - Chief Risk Officer - Ahmet Kağan Yıldırım Corporate Banking - Suat Çetin Operations, and (in acting capacity) IT - Esra Kıvrak Business Banking - Musa Kerim Mutluay Special Assets Management - Durul Selçuk Human Resources - Muzaffer Gökhan Songül Credit Risk Management - Şakir Sömek Financial Institutions - Treasury Group, and (in acting capacity) Boğaç Levent Güven - Financial Affairs and Planning Chief Audit Executive Mustafa Mutlu Çalışkan Internal Audit -

7 ALTERNATİF BANK ANNUAL REPORT 2017

CAPITAL AND SHAREHOLDER STRUCTURE

SHAREHOLDER’S TRADING NAME/FULL NAME SHARE (AMOUNT) SHARE (%) The Commercial Bank (Qatar) 979,999,996.00 100.00

Orient 1 Limited 1 0.00

CBQ Finance Limited 1 0.00

Commercial Bank Financial Services (LLC) 1 0.00

CB Global Limited 1 0.00

TOTAL 980,000,000.00 100.00

Shareholders with Privileged Shares

FULL NAME/TRADING NAME OF SHAREHOLDERS WITH PRIVILEGED SHARES SHARE (%)

Qatar Holding Company LLC 16.80

8 PRESENTATION

ABOUT THE COMMERCIAL BANK (P.S.Q.C.)*, WHICH OWNS 100% OF ALTERNATIF BANK SHARES

Founded in 1975, The Commercial Bank is among the leading financial corporations of the rapidly growing Qatari economy. The Commercial Bank enjoys high brand prestige in the Middle East and Alternatif Bank is the only bank in which it has a 100% stake. The Commercial Bank also holds a 34.89% share in National Bank of Oman, and a 40% share in the United Arab Bank. National Bank of Oman is the second largest bank in that country, operating 60 domestic branches in addition to one branch each in Egypt, Dubai and Abu Dhabi. Headquartered in Sharjah, United Arab Bank operates across the UAE with 14 branch locations. Thanks to these strategic alliances, The Commercial Bank has the capacity to offer Turkey and the region integrated services in overseas transactions for corporate banking and capital markets, as well as trade support, private banking and syndication loans.

* “The Commercial Bank (P.S.Q.C.)” was previously named The Commercial Bank of Qatar (Q.S.C.).

9 ALTERNATİF BANK ANNUAL REPORT 2017

ALTERNATİF BANK’S HISTORY & MARKET POSITION

With its strong workforce of 947 people and a service network of 53 branches, Alternatif Bank not only maintains face-to-face contact with its customers, but also reaches out to different target groups with diversified distribution channels.

Commencing operations in 1991, Alternatif Bank has established The Commercial Bank, Qatar’s prominent bank, acquired a itself as a well-respected player in the banking industry thanks 75% majority share in Alternatif Bank in 2013. With this major to its sound capital structure and strong financial position. breakthrough, Alternatif Bank embraced a new and more Focused on offering high value-added products, services and powerful roadmap with the objective of penetrating the Gulf solutions to clients in the Corporate, Business and Affluent Region, as well as increasing its profitability in Turkey with its Banking segments, Alternatif Bank makes itself distinct from revamped strategy, as a consequence of the transfer of all shares its competitors with its innovative vision and also employs to The Commercial Bank, that took place in December 2016, differentiated business processes in the Corporate and Business management and organisational structure. While bolstering its Banking segments. Operating in the Turkish banking industry strong reputation and high level of credibility in domestic and for 26 years, Alternatif Bank conducts face-to-face banking international markets with the firm backing of The Commercial with its customers via a 53-branch service and 947-employee Bank, Alternatif Bank also moves forward confidently in line with network by reaching various target segments by way of its mission and vision. The Bank aims to be the sector’s “rising diversified alternative delivery channels. star” thanks to its major competitive strengths, such as its highly competent human resources, state-of-the-art technology, operational excellence standards and exceptional service quality.

Alternatif Bank’s Market Share (%)

SHAREHOLDERS’ DATE ASSETS LOANS DEPOSITS EQUITY 2017/09 0.61% 0.61% 0.58% 0.49%

2016/12 0.60% 0.61% 0.61% 0.41%

2015/12 0.62% 0.65% 0.49% 0.45%

2014/12 0.56% 0.65% 0.54% 0.43%

2013/12 0.63% 0.63% 0.53% 0.32%

10 PRESENTATION

FINANCIAL INDICATORS

14,065 17,591 20,785 9,306 10,489 12,989

2015 2016 2017 2015 2016 2017

Total Assets (TL Million) Total Loans (Net) (TL Million) 18.16% 23.84%

6,238 8,798 11,242 1,015 1,265 1,681

2015 2016 2017 2015 2016 2017 Total Deposits (TL Million) Total Shareholders’ Equity (TL Million) 27.78% 32.86% Financial Indicators (Consolidated TL Million)

31.12.2017 31.12.2016 31.12.2015

Total Assets 20,785 17,591 14,065

Total Loans (Net) 12,989 10,489 9,306

Total Deposits 11,242 8,798 6,238

Total Shareholders’ Equity 1,681 1,265 1,015

Net Profit/Loss for the Period 89 30 70

11 ALTERNATİF BANK ANNUAL REPORT 2017

MILESTONES IN THE HISTORY OF ALTERNATIF BANK

The Commercial Bank, came to own all the shares of Alternatif Bank after acquiring the remaining 25% stake from Anadolu Group.

1997 First ATM card “AKart” was 2012 introduced. The Bank introduced Alternatif Alternatif Menkul, offering 2000 Bank Bonus, boutique The Bank a co-branding investment launched the ad 1995 initiative with Alternatif Bank banking services, campaign “We Bonus. shares started was established. Are Listening to to be traded on You” that was Istanbul Stock Alternatif Lease received with Exchange (Borsa was established great interest. 2013 Istanbul) as of 3 to offer financial Qatar’s largest July 1995. leasing services. Alternatif Bank private bank, earned ISO The Commercial Alternatif Alternatif Bank 9001 Quality Bank became Investment opened the “Tele Certification. the controlling 1991 Trust, Turkey’s Branch”, a first in shareholder by 3rd biggest Turkey. purchasing a Alternatif Bank investment trust, 2001 majority interest was established Alternatif Bank was established. in Alternatif in Istanbul on 6 launched its Bank. November 1991. 1999 Internet Banking The Bank Branch. promoted the Efes Card, a 1992 1996 “Longest-Term collaborative The Bank Alternatif Bank Housing Loan” 2010 initiative initiated banking started to be implementation The Bank with Efes activities in managed under that was promoted the new Marketing under February 1992 the majority operated for “Happy Banking” Anadolu Group and opened its shareholding of the first time in concept with an ad organisation, first branch. Anadolu Group. Turkey. campaign. was introduced.

12 PRESENTATION

2016 Recording a huge success, the Basel III-compliant 10- year subordinated loan was oversubscribed four times due to ample demand from overseas capital markets.

The syndication loan secured by Alternatif Bank with the participation of 18 banks from 12 countries was yet another confirmation of the high level of trust that banking and finance circles place in Alternatif Bank.

Alternatif Bank’s corporate website was upgraded in line with ever-changing technology dynamics and trends.

At the Ege Branch and İstanbul-Kozyatağı Branch, Alternatif Bank has initiated 2017 2015 its new generation branch Bank successfully rolled over 2014 Alternatif Bank practices, one of the most 100% of the USD 225 million mutluparam.com, was rated for important components of its syndication loan it had secured the digital banking the first time by focused banking vision. with the participation of 17 banks portal of Alternatif Moody’s with a from 12 countries. Bank, was launched. “Baa3” grade, Alternatif Bank Operations after proving Centre, Data Centres and In a first for the Turkish The Bank its financial Business Continuity Centre banking sector, Alternatif Bank successfully carried foundations in moved to new locations. transformed the loan it obtained out the first the financial from The Commercial Bank into Eurobond issue, market. The Commercial Bank, one additional principal capital. which was the of the most important banks lowest-interest Turkey’s first in the Gulf region and the On the occasion of its 25th rate bond issue in credit card, first private bank in Qatar, anniversary, Alternatif Bank the Turkish banking Diners Club, was came to own all the shares joined forces with Özyeğin sector. re-introduced of Alternatif Bank after University to provide scholarships to customers by acquiring the remaining 25% to 25 students, in its ongoing Alternatif Bank. stake from Anadolu Group. support to education.

13 ALTERNATİF BANK ANNUAL REPORT 2017

2017 HIGHLIGHTS

• After obtaining a 100% stake in Alternatif Bank late last year, • In April 2017, Alternatif Bank obtained quality certifications the first action taken by The Commercial Bank was a TL 210 for Customer Satisfaction, Quality Management and million capital increase in Alternatif Bank. As a result of the Information Security Management. In the second half of the share transfer, The Commercial Bank Managing Director Omer year, the Bank obtained Information Technologies Services Hussain I H Alfardan became Alternatif Bank’s Chairman. The Management System (TS ISO IEC 20000-1), Information Commercial Bank CEO Joseph Abraham and Paul Gossiaux Technologies Business Continuity Management (ISO 22301) joined the Alternatif Bank Board of Directors. and Data Protection and Personal Information Security • Alternatif Bank stepped up efforts in this area and obtained Management System (ISO 10012) quality certifications. As international certifications for Customer Satisfaction a result, the Bank now boasts six internationally registered Management (ISO 10002), Service Quality Management (ISO standards. 9001) and Information Security Management (ISO 27001) • Alternatif Bank secured a syndication loan of USD 225 million systems. with the participation of 17 banks from 12 countries, rolling • To boost the economic relations between Turkey and Qatar over 100% of the loan that it had obtained in the same and create investment opportunities, Alternatif Bank, which period last year. The loan will support the Turkish economy by celebrated its 25th anniversary in 2017, and The Commercial providing foreign trade financing. The international financial Bank joined “EXPO Turkey by Qatar” held on April 19-21, community viewed the transaction as a reflection of trust in 2017 in Doha. Alternatif Bank and The Commercial Bank also Alternatif Bank and the Turkish banking sector. became sponsors of the “Turkish-Qatar Business Leaders’ • Two leading names of the Turkish banking industry – Zafer Summit,” the main event of the organisation. Kurtul and Turgay Gönensin – came to join the Alternatif Bank • By joining forces with its parent company The Commercial Board of Directors. Bank, Group banks National Bank of Oman and United Arab • In October 2017, Kaan Gür was appointed Alternatif Bank CEO. Bank in addition to banks from Egypt and India, Alternatif • Alternatif Bank and Özyeğin University signed a five-year Bank became the first Turkish bank in the region to use partnership agreement in support of education. Blockchain, a cutting-edge technology. • Alternatif Bank and NN Hayat ve Emeklilik signed a five-year partnership deal.

14 PRESENTATION ALTERNATİF BANK ANNUAL REPORT 2017

MESSAGE FROM THE CHAIRMAN

The Turkish economy displayed an impressive growth performance in 2017 despite the cyclical developments in the region. The 11.1% growth rate registered in Q3 in particular is of great significance for being the best quarterly growth performance in the last six years.

Esteemed Stakeholders, The Turkish economy performed strongly even beyond the projections. The world economy improved significantly in 2017. The Turkish economy displayed an impressive growth The recovery in the global economy that began in the second half performance in 2017 despite the cyclical developments in the of the previous year accelerated in 2017. As the prolonged period region. The 11.1% growth rate registered in Q3 in particular of expansionist monetary policy implemented by developed is of great significance for being the best quarterly growth country Central Banks led by the U.S. Central Bank (the Fed) performance in the last six years. A quick glance at the growth wound down in 2017, we also witnessed a significant effort rates of the economies in Turkey’s immediate region clearly in 2017 toward shedding the repercussions of the 2008-2009 demonstrates Turkey’s potential to be a major regional economic crisis. The growth rates of 3.7% worldwide, 2.3% in the United power. To this end, we project Turkey as a major investment States, and 2.4% in the Euro zone registered during the year destination that will also channel Gulf capital into Europe in the demonstrate that these efforts were not without merit. medium and long term.

The signals from the Fed concerning the end of the monetary In the Turkish banking industry, all major players focused on expansion era suggest that the outlook might deteriorate in the efficient management of resources during this past year. Credit period ahead for emerging markets where capital inflows have growth surpassed expectations thanks in large part to Credit been strong for many years. Nevertheless, low inflation rates in Guarantee Fund (KGF) of Turkey’s support, and commercial developed countries and the unwavering pro-expansion stance of loans came to the fore in terms of the composition of the loan the Bank of Japan in particular, make us believe that the switch book. We project that fierce competition, funding costs, and may not transpire as quickly as anticipated. profitability will continue to be the major themes of the industry in 2018, as was the case in recent years. We expect global economic growth to accelerate further in 2018. However, it is worth keeping in mind that there are some potential developments that my dissipate this positive environment such as intensification of steps to transition out of easy money policies by developed country central banks and tax reform in the United States.

16 PRESENTATION

Omer Hussain I H Alfardan Chairman of the Board of Directors

Alternatif Bank leaves behind an important year in its We will continue to support the growing cooperation between sustainable growth journey. Turkey and Qatar. I note with great satisfaction that Alternatif Bank had a We also take great satisfaction in the contribution of Alternatif successful year in 2017 in terms of attaining our projections and Bank and The Commercial Bank to the growth of the strategic targets in total assets and loan and deposit volume as well as in relations between Turkey and Qatar. The Turkish economy’s great profitability. potential and the ever-strengthening commercial ties between Qatar and Turkey are bringing us closer to our goal of growing the As you are aware, major changes took place in the Bank’s share of Alternatif Bank in The Commercial Bank’s consolidated management during 2017. Zafer Kurtul and Turgay Gönensin, figures. I wholeheartedly believe that, thanks to the growing two veterans of Turkish banking, joined our Board of Directors. synergy between the two banks, Alternatif Bank will make its Following this move which will reinforce Alternatif Bank’s sustainable growth permanent in the upcoming period with its commitment to corporate governance principles, Kaan Gür was strong human capital and customer-oriented banking strategy appointed as the new Chief Executive Officer of the Bank. I and contribute to the region’s trade volume. would like to emphasise my pleasure in seeing these executives join the Alternatif Bank family and believe that their experience Respectfully yours, and vision will greatly help the Bank achieve its goals.

Omer Hussain I H Alfardan Chairman of the Board of Directors

17 ALTERNATİF BANK ANNUAL REPORT 2017

MESSAGE FROM THE CEO

Based on Alternatif Bank’s consolidated figures for fiscal year 2017, total assets grew 18.2% on the previous year to reach TL 20.8 billion.

Esteemed Stakeholders, between the two companies will expand the Bank’s product and service portfolio in insurance, life and pension segments, increase With the strength of The Commercial Bank behind it, Alternatif customer satisfaction, and make a major contribution to the Bank’s Bank further consolidated its gains and competencies in the banking business targets. industry in 2017. The Bank left behind another successful year thanks to its customer-oriented strategy, and the dedicated and Growing reputation in international markets with a strong energetic efforts of my colleagues each of whom are subject matter correspondent bank network… experts in their respective fields. The inroads we made in 2017 were not limited to these, either. We rolled over the syndicated loan we had secured last year with a Based on the Bank’s consolidated figures for fiscal year 2017, total renewal rate of more than 100%. This transaction underscores the assets grew 18.2% on the previous year to reach TL 20.8 billion while Bank’s reputation in the global finance industry as well as Turkey’s shareholders’ equity jumped 33% to TL 1.7 billion. While growing robust standing. The Bank also broke new ground in the Turkish our balance sheet, we also significantly increased the total resources syndication history by adding a second-year option to a share of the extended to customers in 2017. Alternatif Bank’s support for the total borrowing. Also in 2017, we converted the subordinated loan real economy through loans rose to TL 14.6 billion at year-end. that was obtained from The Commercial Bank to Basel III compliant equity as another first in the Turkish banking industry. The 27.8% increase in deposit volume to TL 11.2 billion was another indicator of the Bank’s healthy growth during this period. Reaching Proximity to customers underlies our business conduct culture. 54% of total liabilities, deposits continued to be the main source Today’s banking industry is characterised by fast-changing of the Bank’s funding. As a result of our successful operations, we regulations and increasingly fierce competition in various forms. combined growth with profitability as the Bank posted TL 89 million In addition to the nature of the service, customer preferences net profit for the year. are determined by unique concept offerings and quality of the experience. Alternatif Bank is cognizant of the fact that companies We are moving forward confidently on our growth trajectory. that improve customer experience get ahead in the competition. Marching forward steadily toward its sustainable growth targets, Consequently, during the course of our operations, we analyse Alternatif Bank raised its capital by TL 210 million in 2017 and customer needs in depth and simplify their lives with technology- demonstrated its determination to this end once again. This is driven innovations. a major source of motivation for us since it demonstrates the confidence of The Commercial Bank, the Bank’s 100% owner, in To this end, we continued to develop the “advisory branch” concept Alternatif Bank’s and Turkey’s potential. we had launched in 2016 as part of our next generation banking approach throughout 2017. The number of branches equipped with Alternatif Bank continues to reinvent itself in line with its mission of this infrastructure rose to 13. We will extend this concept to the providing the best service to its customers. Rather than assessing entire branch network by year-end 2019 and make superior banking their needs and expectations merely in terms of banking products, experience an integral part of our services. we analyse customers’ all financial processes and strive to offer quick and competitive solutions in all areas. Thanks to the know-how, support and vast operation scope of our parent company, we closely follow the new payment forms that In accordance with this approach, we continued to forge partnerships already began to change our lives such as the block chain technology with companies that share our business conduct approach from as well as development of and opportunities presented by new complimentary industries. We inked a five-year partnership technologies. We will also continue to create added value for our agreement in bancassurance services with NN Hayat ve Emeklilik customers in these areas at all times. (NN Life and Pension Company) in 2017. We believe that the synergy

18 PRESENTATION

Kaan Gür Board Member and CEO

Due to increasing digitalisation and changing usage patterns, The Commercial Bank’s support prompts us to look to the future importance of information and, as a result, data security is growing with confidence. with each passing day. Consequently, safeguarding IT systems and We prepared a new roadmap to attain our main goals in 2018, which infrastructures against interruptions and security flaws is becoming are to continue acquiring new customers and to maintain the growth an integral element of success. The Bank supplemented its existing in transaction volumes. In this new era, we are inviting businesses quality certifications and standards with three new certifications of all sizes and in all industries with growth ambitions and faith in covering the areas of Customer Satisfaction, Business Continuity and a better future that strive to create jobs and build infrastructure Personal Information Security Management in 2017, registering its to knock on our door. We recognise that the road to success goes compliance with international quality standards in these fields. through knowing the customer’s business at least as good as the customer itself does. To that end, we will continue to improve our We support our youth, the future of Turkey. business model and processes and increase our investments in this We believe that Alternatif Bank can grow in the true meaning of the area in an attempt to render “seamless service” to our clients in the word by creating value not just for its customers and shareholders, period ahead. but also for the society we exist and for all the stakeholders. We aim to boost our social development-oriented initiatives as part of our We firmly believe that we will perform more strongly in terms of social responsibility efforts designed with this approach. service quality, business volume and financial results in 2018 on the back of The Commercial Bank’s international reputation and reach as We launched a cooperation project with Özyeğin University, a well as Alternatif Bank’s robust correspondent banking relationships, leading higher education institution in Turkey, as part of the “Equal overhauled advisory branch concept, and expert employees. We will Opportunity in Education Programme in 2017. We believe that continue our sustainable growth journey without deviating from this multi-faceted cooperation, encompassing education support, effective risk management while creating value-added for Turkey’s mentoring, internship and job opportunities for the university’s business and commercial world; we will move “advance always outstanding students as well as corporate training and certification together” programmes for the Bank’s employees, will strengthen the interaction between academia and industry. I would like to take this opportunity to express my sincere gratitude to our dedicated employees; our customers for admitting us to their Our renewed brand face reflects the transformation in our service journeys; our shareholders for believing in our bright future; our approach. Board of Directors for shining a light on our road ahead with their We will leave behind a major milestone in 2018 as part of our expertise; and all other stakeholders for strengthening our Bank transformation process that began when The Commercial Bank through their close engagement. became Alternatif Bank’s parent company. We are overhauling our brand identity as a reflection of Alternatif Bank’s industry Respectfully yours, experience and know-how of more than a quarter century, the deep-rooted business conduct culture of the Alfardan Group, and our ever-growing synergy with The Commercial Bank. Our renewed brand face that symbolises our determination to conduct banking for insight commerce will be accompanied by accelerated communication initiatives and we will communicate the essence Kaan Gür of this transformation to our entire stakeholder community in the Board Member and CEO coming days.

19 ALTERNATİF BANK ANNUAL REPORT 2017

2017 ACTIVITIES

20 2017 ACTIVITIES

With its strong workforce of 947 people and a service network of 53 branches, Alternatif Bank not only maintains face-to- face contact with its customers, but also reaches out to different target groups with diversified distribution channels.

21 ALTERNATİF BANK ANNUAL REPORT 2017

CORPORATE BANKING

Alternatif Bank provides customised financial solutions to meet financing needs of its clients in the various industries including retail, construction, manufacturing, energy and logistics.

Serving Corporations with an annual turnover above TL 300 million, Corporate Banking is an integral part of Alternatif Bank’s vision, of the best bank in its class.

With its client- and industry-focused approach, the Bank offers results- oriented solutions to meet client needs especially in areas requires expertise, including corporate finance, trade finance, cash management, and derivatives products.

Corporate Banking provides service to corporate clients through four corporate branches; three branches in Istanbul, one in Ankara and two mixed branches in Izmir & Gaziantep and Head Office staff, with a total of 50 employees.

In 2017, with the synergy created among Alternatif Bank, The Commercial Bank and the latter’s affiliates National Bank of Oman and United Arab Bank, the foreign trade volume reached to USD 2.2 billion. Furthermore, the Bank capitalises on this group synergy for financing and project loans to secure the resources with the most favourable cost structure, creating an additional loan allocation volume.

Alternatif Bank offers customised finance solutions to meet the long-term financing needs of its clients in various industries including construction, manufacturing, energy, logistics, and particularly retail. The Bank also provides financing for projects in several areas such as renewable energy, hotels, construction of business centres and office buildings.

Focused on developing sophisticated and long-term relationships with customers while further deepening existing client relationships, Alternatif Bank Corporate Banking makes proactive contributions to clients that enhance their competitive strengths and help them seize growth opportunities.

22 2017 ACTIVITIES

Corporate Banking firmly believes in the importance of Targets for 2018 relationship banking. The Bank also focuses on providing In the coming period, Corporate Banking plans to continue solutions to meet customers’ needs in cash management and expanding with its high quality lending portfolio in line with trade finance, in particular. In 2017, Corporate Banking continued Alternatif Bank’s corporate strategies. It will also support executing Transaction Banking activities through the Cash Alternatif Bank position itself as one of the sector leaders in Management channel, undertaking collection and payment loans requiring expertise and know-how, such as project finance, transactions via its product range, applications and channels. derivative products, trade finance and structured products. Transaction Banking Unit aims to reduce the operational Corporate Banking will continue growing the customer base with costs and minimise the collection risks of clients to help them a customer- and sector-focused approach, and offering products gain cost advantages, while also contributing to the Bank’s structured to meet all needs. Another strategic priority for the transaction volume, profitability, and revenue from demand department is to increase its customers’ volume and portfolio at deposits. In addition, Transaction Banking Unit capitalises on the Bank. its IT capabilities to devise customised solutions for customers. Meanwhile, Trade Finance Unit closely monitors global and regional foreign trade corridors, trends and market demands. It then rolls out new products in response to market dynamics and customer demands, complementing the Bank’s traditional foreign trade products.

USD 2.2 billion Foreign trade volume of the Bank

23

...we stand by him with a wide range of alternative solutions, joining forces as we have always done. 26 Mr. Faruk taking a new initiative to expand his factory... ALTERNATİF BANK ANNUAL REPORT 2017

BUSINESS BANKING

Alternatif Bank Business Banking provides a holistic service model to customers featuring a wide range of products that respond to today’s needs.

In the framework of the transformation project, Corporate and Business Banking Units were restructured as separate business units. At the end of 2017, Business Banking Department was reorganised under the project to cover the SME banking segment and it now serves firms with annual turnover of up to TL 300 million.

Developed to redesign the Business Banking loan book as part of the Bank’s management strategies, the transformation plan was carried out successfully in 2017. Specifically, projects were undertaken to manage the loan portfolio more effectively; management actions necessitated by market developments were made promptly and effectively; and the targeted level of profitability was achieved. This approach further increased Alternatif Bank’s cooperation with its Business Banking customers while boosting the Bank’s effectiveness among clients.

Alternatif Bank continued to provide the financial services required by customers in line with market trends and economic developments in 2017. In accordance with the transformation strategy, the Bank prioritised growth in the commercial segment by targeting customers with annual turnover of TL 40 million to TL 300 million using a relationship-oriented banking approach. While continuing to serve existing customers in the SME segment, the Bank focused on clients that promise growth potential and that can move up into the commercial customer field in the range of annual return TL 25-40 million with medium to long term financial support.

Alternatif Bank extended project-based credit support in various income- generating areas that include energy, hotel, and business centre and office space construction projects, related to the clients in commercial segment. The Bank also provided boutique financing solutions to meet the long-term finance needs of customers in target sectors such as tourism, construction, automotive, retail, food and clothing, chemicals, and metals, with a particular focus on the renewable energy sector. Through the funds made available to the real sector with the help of financing solutions that rely on its deep experience and rational analyses, the Bank provided support to projects of those commercial customers that drive their respective sectors and that operate nationally and/or internationally.

28 2017 ACTIVITIES

Alternatif Bank Business Banking offers customers a holistic cash and non-cash loans extended for the benefit of the Turkish service model based on a contemporary product range that economy stood at TL 6 billion. While Business Banking accounted can effectively respond to current needs. With its integrated for a 17% share of the Bank’s total deposits of TL 11.3 billion as service approach in this key segment, Business Banking provides of year’s end, Business Banking share is 45% in the Bank’s total services to meet the needs of companies at all levels comprising income (before expenses and NPL). Compared to the last year, the value chain of customers. Business Banking works together in 2017 there was a 30% growth in total cash loans and 46% with Corporate Banking to ensure that synergy is bolstered in growth in cash TL loans. the value chain management of the Bank’s customer portfolio. Alternatif Bank delivers effective, cutting-edge solutions to In addition to working to achieve its financial targets, Business Banking clients at every stage of their operations. Alternatif Bank continued to pursue structural and organisational The Bank provides effective services with a multi-dimensional objectives in line with annual plans. As of 31 December 2017, the product range that is continuously enriched with new loan, Business Banking Department serves its customers with its 200 deposit, investment, foreign trade, insurance, treasury/ strong and specialised team members located at 44 commercial derivative transactions, and cash management products. This and mixed branches in 20 provinces in Turkey. Pursuant to holistic approach also contributes to the success of Alternatif the plans initiated a year earlier, the Bank’s management has Bank in winning new customers and enhancing customer loyalty. optimised the branch network to bring operational costs under control, yield operational productivity, and support the Alternatif Committed to maintaining loan portfolio diversification by Bank’s future development. To this end, the Bank completed segment, 39% of Alternatif Bank’s overall loan book consists efforts to restructure the network in terms of provinces and of commercial loans and SME loans. As of year-end 2017, total locations, in keeping with the overall corporate strategy in 2017.

39% The share of Business Banking loans in total loans

29 ALTERNATİF BANK ANNUAL REPORT 2017

BUSINESS BANKING

Alternatif Bank provides customers with industry-specific cash management solutions backed by innovative technology.

Alternatif Bank continued to analyse customer needs by industry and develop tailored solutions to meet these specific needs during the 2017 fiscal year. The Bank identified market- and regulatory technology- based requirements and conducted product development efforts geared toward alternative channels to address these needs. As part of this effort, the Bank continued to develop new products and services – in the insurance, treasury/derivative transactions, supplier financing and cash management segment in particular – to improve customer satisfaction, roll out new products addressing customer-specific needs and upgrade its technology systems infrastructure.

Alternatif Bank delivers cash management solutions backed by innovative technologies and customised according to each sector’s requirements. By contributing to client receivables management and operational efficiency, these products boost customer satisfaction and loyalty. In 2017, clients increasingly made use of customised payment solutions that help save time and money, contributing to the operating efficiency of both customers and the Bank.

Meanwhile, commercial collection systems and relevant services continued in the last year. In 2017, an active operation continued under the Direct Debit System (DDS) and the total volume of collection mediated by the DDS channel was TL 2.15 billion.

In order to support SME financing more proactively by gaining access to the Treasury’s loan-guarantee programs, Alternatif Bank started participating in the Credit Guarantee Fund of Turkey (KGF) as a partner in April 2015. Efforts are currently underway to leverage this partnership in designing special funding programs in 2016. During the year, TL 1.1 billion loans with collateral of KFG were used.

30 2017 ACTIVITIES

The Bank continued to help SME customers obtain financing insurance, engineering risks, industrial package risks, financial facilities procured from other resources, such as International loss and liability insurance, and contributed to Alternatif Bank’s Financial Corporation (IFC) and European Fund for Southeast non-interest revenues. Europe (EFSE). In addition, Alternatif Bank maintained its ongoing support for export financing through its intermediation Alternatif Bank laid the foundation for the continuation of the of Eximbank loans. loan cycle by transferring the loan risk-bearing customers to the insurance system. During the same period, the operating In the fourth quarter of 2015, Alternatif Bank restructured the structure of the Bank’s elementary insurance and group health Insurance Unit in line with a broker-type organisational model insurance were improved and the Bank’s in-house advisory (in terms of employees and modus operandi) and reorganised it processes were carried out. under Business Banking. In 2017, the Insurance Unit completed the necessary research studies (on price-based competition, In collaboration with the Treasury Department, effective product formation, appropriate insurance company selection, solutions are offered to Alternatif Bank customers in order to contracts, and compliance processes) in order to transform the minimise currency and interest rate risks. In 2017, Alternatif life insurance and pension businesses into a model suitable to Bank continued to leverage the synergies with Group banks The the Bank’s operational structure. Commercial Bank, National Bank of Oman and United Arab Bank to create fast and low-cost financing alternatives particularly In the operations of elementary insurance, the Insurance Unit for the foreign trade, guarantee and loan needs of companies worked on the development of tailor-made service solutions for conducting business in the Gulf region. customers of the Bank in receivables insurance, car fleet package

31 ALTERNATİF BANK ANNUAL REPORT 2017

AFFLUENT BANKING

Affluent Banking, which offers efficient product management solutions, posted 37% growth in time deposits.

2017 saw Alternatif Bank Affluent Banking begin to reap the positive results of its transformation initiative, with sustainable growth becoming more firmly entrenched. Channel diversity was ensured with the effective use of alternative distribution channels. In addition, the groundwork was laid to become the preferred bank of customers for deposit, investment and loan products.

The Department recorded 200% growth in the product Time Deposit Account without a Fixed Term (VOV). Designed to meet the special needs of customers, this innovative offering features competitive interest rates for deposits in local and foreign currency.

Affluent Banking provides a wide product range while delivering efficient product management solutions. This is accomplished by executing a focused banking strategy, getting to know customers and their investment habits well, and protecting customers from risk. As a result, the Department posted 37% growth in time deposits in 2017.

During the year, the Department increased demand deposits by 17% by identifying the expectations of customers and becoming their bank of choice in daily financial activities.

At Alternatif Bank, well-experienced and professional sales teams promote investment products that are appropriate for their clients’ investment profiles, risk and return expectations. With an expanded product range that better responds to the needs of diversified customer segments, the Bank started focusing on investment products in 2016. This year, investment products recorded 300% growth thanks to these efforts.

32 2017 ACTIVITIES

In 2017, Alternatif Bank continued to expand its credit card On the lending side, products focused on the needs of the target product portfolio, which is designed to meet the needs of segment and promotional campaigns executed throughout the upmarket customers. To promote the products and services year resulted in a 50% rise in consumer loans over 2016. of the highly prestigious Diners Club Card, accepted at over 30 million points worldwide, the Bank highlighted the Diners To use alternative distribution channels more efficiently, the universe and its many privileges. Alternatif Bank also executed Bank completed infrastructure development for the Web Loan co-badge card initiatives with leading companies in their and SMS Loan options and launched these offerings for clients. respective sectors to develop services that will make a difference With this effort, the Bank enhanced its channel diversity in customers’ lives. Teaming up with Interbank Card Centre of while also bolstering sustainable growth and efficient risk Turkey and Discover, Alternatif Bank began to print Diners TROY management. co-badge cards – a first in Turkey. As a result, Alternatif Bank Diners Club Cards can now be used in Turkey and overseas, at In 2018, Alternatif Bank will use its highly skilled sales teams all contracted merchants carrying the TROY logo. Following the to execute a focused banking strategy with Affluent Banking issue of TROY co-badge cards, the number of Diners Club cards products centred on the target segment. In addition, Affluent jumped 32% in 2017. Banking will work to acquire new customers, generate customer efficiency and grow the customer base with its array of sophisticated products delivered via alternative distribution channels.

50% Increase in Consumer Loans

33 ALTERNATİF BANK ANNUAL REPORT 2017

TREASURY GROUP

All positions and risk limits at Alternatif Bank are determined by the Board of Directors. The Trading Department aims to attain the profit goals within these limits.

Expert Treasury Management on the Basis of Functions Trading Department Alternatif Bank Treasury Group consists of the Asset/Liability The Trading Department is comprised of three units: the Management Department, the Trading Department, the Treasury Fixed-Income Securities Desk, the Foreign Exchange Desk, Marketing Department, and the Economic Research Unit. and the Derivatives Desk. The Department’s main product portfolio includes spot and forward currency (Turkish lira cross) Asset and Liability Management Department transactions, spot and forward foreign exchange transactions The Asset and Liability Management Department primarily in other G20 and developing country currencies, domestic and engages in liquidity management, interest risk management, international bonds and bills, interest rate swaps, cross-currency and fund transfer pricing. As part of liquidity management, swaps, and derivatives. the Department actively manages the Bank’s liquidity in all currencies in compliance with internal and legal liquidity limits. It The Trading Department’s competitive pricing plays a key role executes borrowing and placement transactions in organised and in strengthening the Bank’s position in capital markets and over-the-counter markets using FX swaps, repo/reverse repo, supporting the Treasury Marketing Unit via FX and FX derivatives and other similar instruments. transactions entered into with corporate and commercial customers. Effective pricing is provided to customers in In addition, the department also carries out efforts to secure accordance with their market expectations as part of options funding facilities under various structuring arrangements from portfolio and risk parameters management efforts. The international banks. The Asset and Liability Management Department cooperates with other departments to develop Department also performs duration-based fund transfer pricing. various products for the needs of corporate clients with a This model reflects the Bank’s marginal cost while taking into customer-oriented approach. consideration behavioural analyses regarding the products. The Department manages the balance sheet interest risk and The Fixed-Income Securities Desk actively carries out trade Alternatif Bank’s investments in line with the guidance of the executions in organised and over-the-counter (OTC) markets in Asset and Liability Committee, within the limits set by the Board response to customers’ and the Bank’s trading or balance sheet of Directors. Interest rate swaps (IRS), swaption, and cross- needs. The Foreign Exchange Desk provides comprehensive currency swap transactions are utilised to hedge interest risk. access to currency markets and as well as competitive pricing for The unit also carries out securities trading and related funding client needs. The Derivatives Desk offers competitive pricing and transactions, with the purpose of boosting balance sheet customised solutions in all derivative products in order to meet profitability, within investment limits. hedging needs of customers while aiming to generate income in the derivatives markets.

All positions and risk limits at Alternatif Bank are determined by the Board of Directors. The Trading Department aims to attain the profit goals within these limits.

34 2017 ACTIVITIES

• Increasing transaction volumes for customers who need risk Treasury Marketing Department protection products but have not taken due action, The Treasury Marketing Department serves retail, commercial, • Taking a large share from the transactions of clients who are and corporate clients. The Department performs spot foreign using treasury products, and boosting the contribution to the currency trading, and provides pricing options and shares market Bank’s profitability and growth to the next level. reports in order to minimise the exchange rate, interest rate, and commodity risks of customers. Economic Research Unit The Economic Research Unit briefs the Treasury Division, the In visits to Alternatif Bank clients, the Department makes Bank’s Senior Management, and customers via reports on presentations and aims to expand the transaction volume with economic developments, expectations, and risks. Aside from existing Treasury Marketing clients. The main objectives of the the reports, the Department also monitors and reports on the Department include: developments of the industry, prepares presentations regarding • Expanding the spot transaction volume, the economic outlook for institutions excluding banks, and • Converting potential customers to active customers by supports the Treasury Marketing Department in these efforts. increasing client visits, In addition, client visits and reports are conducted as part of marketing activities of various business lines.

35 ALTERNATİF BANK ANNUAL REPORT 2017

36 2017 ACTIVITIES

...we present him special offers, joining forces to ensure a productive future.

37 2017 ACTIVITIES

38 Mr. Yaşar exploring technologies that will redouble the productivity... ALTERNATİF BANK ANNUAL REPORT 2017

FINANCIAL INSTITUTIONS

Raising funds from international markets is one of the core activities of Alternatif Bank’s Financial Institutions Group. As of end-2017, these funds totalled USD 1.3 billion and constitute a key component of the Bank’s overall funding profile.

Alternatif Bank Financial Institutions Group successfully sustains its broad network of correspondent banks, while acting as an intermediary in its clients’ foreign trade transactions and also provides funds to both the Bank and its customers under competitive conditions. The Bank boasts strong access to long-term funds thanks to its eurobond issuances in international debt capital markets, subordinated and bilateral loans and funds from multilateral financial institutions.

Funds from International Markets Raising funds from international markets is one of the core activities of Alternatif Bank’s Financial Institutions Group. As of end-2017, these funds totalled USD 1.3 billion and constitute a key component of the Bank’s overall funding profile. Alternatif Bank’s borrowing strategy is to achieve effective balance sheet management and reduce funding costs by the diversification of borrowing instruments, maturity and lenders. As a result of this strategy, the Bank maintains funds with maturities ranging from six months to 10 years, from a diverse spectrum of lender banks, investors and institutions.

One of the mainstays of Alternatif Bank’s annual funding program is borrowing from the syndicated loan market. Signed on July 17, 2017, the syndicated loan is among the Bank’s major success stories for the year. The USD 225 million loan, secured with the participation of 17 banks from 12 countries, has been 100% rolled over. Another aspect of the transaction’s success is the fact that it coincided with the Qatar crisis. The loan was secured in two different currencies – USD 123 million and EUR 89 million – at Libor+1.85% and Euribor+1.75% for the 367-day tranche, and at Libor+2.50% and Euribor+2.40% for the two-year tranche. In this transaction, the Bank followed the market trends and added the option of a two-year tranche, which received ample interest. The two-year tranche constituted 20% of the total funds raised, which was the highest proportion seen in syndicated loans in the Turkish market in 2017.

40 2017 ACTIVITIES

Another major achievement of the Bank in 2017 was the Alternatif Bank has historically had strong relations with the conversion of the USD 75 million The Commercial Bank tranche, multilateral financial institutions. As of end-2017, total USD $ of the USD 125,000,000 subordinated loan received back in 143 million long-term funds in the Bank’s books, provided by 2015 from alliance banks, into an additional Tier 1 structure. As International Finance Corporation (IFC) and the European Fund a significant step forward in strengthening the Bank’s capital for South East Europe (EFSE), make significant contribution to base, the USD 75 million tranche of the borrowing instrument the development and the sustainable growth in the country’s was transformed into additional Tier 1 structure on July 31, 2017 economy. The Bank endeavours to maintain and improve after receiving the necessary approval from BRSA and signing relations with multilateral financial institutions and ensure an amendment agreement with the lenders. The USD 50 million access to long term funds for supporting the economy. These tranche secured from two other alliance banks, United Arab funds include the SME loans, funds for women entrepreneurs, Bank and National Bank of Oman, remains as subordinated loan. and the long-term funds for energy efficiency and renewable The transaction is an important indicator of the synergy and energy purposes. collaboration among Alternatif Bank, The Commercial Bank Qatar and the alliance banks. The transaction made history as the Turkish banking sector’s first Basel III compliant additional Tier 1 transaction, performed in accordance with domestic legislation.

+1,000 Alternatif Bank’s network of correspondent banks

41 ALTERNATİF BANK ANNUAL REPORT 2017

FINANCIAL INSTITUTIONS

Foreign trade transactions constitute one of the most important channels for Alternatif Bank for the purpose of offering diversified products to customers and maintaining correspondent banking relations.

Correspondent Banking Relations The Financial Institutions Group works closely with Foreign Since its inception, Alternatif Bank has fostered strengthening Trade Operations and Trade Finance Units which specialise in correspondent relations with its financial institution diversifying foreign trade products and responding to customer counterparts. Maintaining, expanding and diversifying the needs. The Group organises promotional campaigns together correspondent bank network in line with its customers’ with the relevant business units to obtain positive results in requirements are among the Bank’s top priorities. boosting transaction volumes and numbers, thereby serving the Bank’s objectives. The Financial Institutions Group also With its network of around 1,000 correspondent banks, collaborates closely with the Treasury Department to ensure Alternatif Bank provides efficient solutions to its customers that the Bank pursues a more focused strategy in its treasury and intermediates in all types of international transactions, transactions with its correspondent banks. particularly in trade finance and payments. The Bank optimises the existing volumes and number of transactions within its Foreign trade transactions also facilitate the Bank’s access correspondent network and adheres to the reciprocity principle, to alternative funding sources. Post-financing and other paying particular attention to beneficial relations with its foreign trade related funds secured by Alternatif Bank in 2017 main correspondent banks. As a result of these efforts, the amounted to USD 308 million. These funds help the Bank maturity and pricing structure of its funds from international increase its foreign trade transaction volumes while enabling sources, which constitute a significant share in Alternatif Bank’s access to new clients. liabilities’ mix, make a positive contribution to the overall cost of funds and the maturity profile. In January 2017, Alternatif Bank secured a USD 50 million line from the European Bank for Reconstruction and Development Foreign Trade (EBRD) under the Trade Facilitation Programme (TFP) and Foreign trade transactions are among the most important successfully allocated this facility in only four months. Alternatif channels for Alternatif Bank in terms of offering diversified Bank’s current foreign trade guarantee programs consist of USD products to its customers and maintaining correspondent 100 million secured from IFC and USD 50 million from EBRD. banking relations. The Bank is a major supporter of foreign These programs are crucial in terms of accessing new foreign trade clients with its current correspondent network and diverse trade clients, initiating relations with new correspondent banks, product range. In 2017, the Bank intermediated a total volume creating additional capacity for Alternatif Bank’s foreign trade of USD 2.2 billion foreign trade transactions and endeavours to limits, and accessing foreign funds at competitive rates. increase this amount further. Another loan secured by the Financial Institutions Group in 2017 was the Foreign Trade Relending Facility with Taiwan Eximbank. Thanks to this facility, Alternatif Bank customers can enjoy better maturity and interest rates for the loans relating to the import of consumer and investment goods from Taiwan.

42 2017 ACTIVITIES

OPERATIONS

The Operations Management Department is primarily responsible for providing standard, error-free, high quality and fast services to internal and external customers, via processes designed centrally in coordination with business units.

Alternatif Bank’s Operation Management comprises the All domestic and international legislative changes are closely Foreign Trade Operations, Credit Operations, Current Branch monitored. The Bank’s rules and procedures are aligned with Transactions, Organisation, Operation Coordination, Treasury the latest domestic and international legal and regulatory Operation, Real Estate Expertise and Sales, Administrative requirements. Affairs, Construction and Real Estate functions. The Department shapes its operations with a team spirit in line with the Bank’s In 2017, renovation of the Ataşehir, Sirkeci, Şişli, Sultanbeyli, vision, targets and risk perspective. Denizli and Güneşli branches continued in line with Alternatif Bank’s new branch design. The renovation of 13 branch locations The primary objective of the Operation Management is to provide was completed during the year. service to internal and external customers in coordination with the business units, through centrally designed and managed processes. In collaboration with the relevant business units, the Operations Department receives customer feedback (complaints, requests, Business processes are continually revised in response proposals) reaching the Bank via various channels. The to Alternatif Bank’s changing needs and evolving market Department analyses these in specified periods and takes action conditions. All transaction steps that do not create added value to resolve any problematic issues identified. are carefully scrutinised and the entire work flow is automated as much as possible to achieve business process excellence.

43 ALTERNATİF BANK ANNUAL REPORT 2017

HUMAN RESOURCES

Horizontal and vertical career opportunities arising within Alternatif Bank are announced first to employees via the intranet portal. The “Open Jobs Model” offers employees various options in managing their plans for the future.

85.7% 947 NUMBER RATIO OF UNIVERSITY AND HIGHER EDUCATION OF EMPLOYEES GRADUATES

Alternatif Bank Human Resources Policy employs contemporary human resources systems in order to support continuous success and development in coordination with all business lines in accordance with the Bank’s goals.

Information on Human Resources Practices

Career Management: Employees who create added value and perform successfully are given the opportunity to rise up to the highest echelons of the organisation; as much as possible, managers are promoted from within the Bank. Similarly, great importance is placed on career management efforts at the Bank.

Horizontal and vertical career move opportunities within the Bank are first announced to the employees via the intranet portal. The “Open Positions Model” gives deference to employees in managing their own future plans. For the open positions that are not filled from within the Bank, applications via the Bank website, career portals, and e-mail are reviewed and considered. All applications that are submitted are recorded in the human resources database and are kept in the database for one year. Priority is given to interviewing suitable candidates in the existing database records based on the Bank’s annual workforce planning formulated at the beginning of the year, or when a position opens up.

44 2017 ACTIVITIES

At Alternatif Bank, new university graduates especially from Assessment results are shared with employees and used as input economics, business administration and engineering departments for training and career planning efforts and promotion decisions. take a series of exams and interviews. Successful applicants are Promotions are made by the employee committee based on offered the chance to participate in a 6-month Long Term Internship performance data. In addition, Alternatif Bank pays a bonus to program. At the end of the 6-month period of service, the high personnel every year based on the Bank’s operating results and the performing interns may be recruited as contracted or permanent individual performance of the employees. Premiums paid in cash by staff at various Head Office departments or at branches. the Bank and its subsidiaries to employees in 2017 amounted to TL 10,824 thousand (2016: TL 7,805 thousand). In 2017, 22 new graduates joined Alternatif Bank through the MT process that was restarted in 2015. The MTs who joined the Bank in Compensation Management: In an attempt to maintain the September were placed in various departments and branches as of highest level of employee motivation, Alternatif Bank monitors end-2017 after a three-month training and rotation. developments in the industry and within the Bank and strives to pursue a dynamic and fair compensation policy that meets the needs Performance Management: Alternatif Bank’s Performance of the organisation. Management System was designed to raise the bar for the Bank’s success and support continuous development. An open system The Bank’s compensation practices are overseen and supervised by based on concrete and measurable goals, the Alternatif Bank the Remuneration Committee on behalf of the Board of Directors. Performance Management System sets goals in the beginning of The Compensation Policy is reviewed at least once each year in order the year and assesses employee performance at the end of the year to ensure the effectiveness of this policy. according to these goals as well as the individual’s competencies.

28 hours Trainings per person in 2017

45 ALTERNATİF BANK ANNUAL REPORT 2017

HUMAN RESOURCES

Alternatif Bank Human Resources Policy employs contemporary human resources systems in order to support continuous success and development in coordination with all business lines in accordance with the Bank’s goals.

Our Training Policy and Our Development Centre: Alternatif Bank Excellence and Innovation Awards. The event was organised by began manages its training and development activities through CorpU, one of the most prestigious awards competitions in training Alternatif Bank Development Centre under the concept “All about and development. Development.” Conducting its training activities via alternative methods, Alternatif Bank uses in-class training in addition to In 2017, the training per capita is 28 man/hour (4 days). distance education platforms. Human Resources Activities in 2017: Having adopted the vision of “being an innovative and solutions- • Social Media: Under the management efforts of the Facebook oriented centre of development that gives maximum support page/Alternatif Bank Career-HR Facebook page, the number to its employees’ development,” Alternatif Bank Development of followers total 13,793. The Abankkariyer.com blog was Centre conducts employee training seminars on banking, personal managed as part of social media management initiatives. development, management and leadership, with the participation • GelecekSEN Project: Some 33 interns were hired under the of in-house trainers, professional firms and university continuing long-term internship process in 2017. To date, 18 persons education centres. from this program joined the Bank as permanent staff. • Reward System: The Spot Award initiative was launched The primary goals of include aligning training and development in April 2017. Spot Award is a reward system designed activities with the Bank’s goals, strategies and working principles, to highlight fast improvements and special, outstanding investing in the development of its employees so as to support the contributions to projects, customer satisfaction, and other key vision of being the primary bank preferred by its customers, and areas at Alternatif Bank. Actions considered eligible for a Spot strengthening our values and leadership competencies. Prize include proposing new ideas and suggestions to improve work processes; developing and implementing a new project Alternatif Bank organises long term educational programs under idea; fast and successful completion of a project; external its Management Trainee (MT) and Talent Management schemes. customer/internal customer satisfaction and assessment; The Bank also provides staff members with the necessary training business relations; communications success; suggestions that to obtain banking certifications, to raise the general certification lead to savings in labour, materials, equipment or other costs; ownership level at Alternatif Bank. Combining under a single roof all preparing/making a successful presentation. The employee to the training needs of Alternatif Bank employees—from department- receive a Spot Award is determined at the recommendation specific development programs and development implementations, of the relevant department and approval of the Executive Vice to distant education and ad hoc programs developed in cooperation President. Spot Award is targeted at staff positions below the with universities— Alternatif Bank Development Centre’s building has assistant manager level. In 2017, a total of 83 employees were classes for five different concepts. presented with the Spot Award. In addition, the Bank started gifting books to employees on their birthday, presenting gift In its educational training and personal development activities, cheques to staff with new-born babies (49 personnel), and Alternatif Bank places special emphasis on measurement and awarding dinners to newlywed couples (17 employees). assessment. The Bank received the Best Practice Award in the “Measurement” category at the 2014-2015 CorpU Learning

46 2017 ACTIVITIES

• My Alternatif Bank Guide: The “My Alternatif Bank Guide” • HR Listens to You/Branch Visits: In 2017, three “HR Listens was developed to help newly recruited employees more to You” activities (separate activities at HQ and AND buildings) effectively deal with the difficulties and challenges they may and 14 branch visits were organised to come together with the face in their first week at work. The Guide also assists new Bank’s employees. hires in adapting to work processes and the Bank in a shorter • Collaboration with Özyeğin University: To mark the occasion of span of time. its 25th anniversary, Alternatif Bank started to grant scholarships • Human Resources Bulletin: In January 2017, Alternatif Bank to 25 students for a five-year period. The Bank-University started sending the Human Resources Bulletin to all Bank collaboration extends beyond this scholarship program. An staff via e-mail. The Bulletin periodically includes the names of initiative entitled “Effective Social Media Management” was new employees, staff with an upcoming birthday, those who launched and students are currently working on it as part of their just had a baby, seniors, or newlywed personnel. Every month, graduation projects. Both parties aim to deepen this cooperation an interview is conducted with a top manager at the Bank and through different projects that will provide new opportunities various departments are introduced to readers. Each month, and advantages to both university students and Alternatif Bank a human resources practice is also explained in detail. In employees. addition, information is provided on training seminars, events • Employee Loyalty Survey: While developing strategies that will and Spot Award-winning staff of the month. move Alternatif Bank forward, the views and contributions of employees are highly valued by the Bank. To systematically elicit these views, an Employee Loyalty Survey was conducted under the supervision of Aon Hewitt, an independent international management and human resources consultancy firm.

Human Resources Profile:

Data on the Alternatif Bank staff as of year-end 2017 is as follows:

NUMBER OF EMPLOYEES 2012 2013 2014 2015 2016 2017 Head Office 483 550 507 535 476 500

Branches 747 863 708 503 425 447

TOTAL 1,230 1,413 1,215 1,038 901 947

GENDER 2012 2013 2014 2015 2016 2017 Male 52% 51% 51% 51% 53% 52%

Female 48% 49% 49% 49% 47% 48%

TOTAL 100% 100% 100% 100% 100% 100%

AVERAGE AGE 2012 2013 2014 2015 2016 2017 35 35 36 37 36 37

EDUCATION 2012 2013 2014 2015 2016 2017 Primary School 22 19 17 14 10 12

High School 179 225 183 147 125 123

University 898 1,043 897 758 666 704

Post-Graduate 131 126 118 119 100 108

Proficiency in a Foreign Language 460 534 450 456 346 379

AVERAGE SENIORITY 2012 2013 2014 2015 2016 2017 5.6 4.7 4.9 5.6 5.8 6.3

47 ALTERNATİF BANK ANNUAL REPORT 2017

48 2017 ACTIVITIES

...we stand by him with a wide range of solutions, joining forces as we have always done.

49 2017 ACTIVITIES

50 Mr. Giray seeking solutions to boost his company’s exports... ALTERNATİF BANK ANNUAL REPORT 2017

INFORMATION TECHNOLOGY

In line with Alternatif Bank’s vision of digitalisation, the Bank’s corporate web site, the Retail and Corporate Internet Banking Channels and the Mobile Banking Channel were refreshed and restructured.

The Alternatif Bank Information Technologies Department successfully continued its technology development and investments in line with the needs of the business units during the 2017 operating year. The Department’s goal was to satisfy business goals, business requirements, and information technologies compliance; increase efficiency and effectiveness; reduce costs; and introduce products to the market within timeframes that create a competitive advantage for the Bank. The Department developed requested projects as well as projects deemed critical from the technology perspective. Alternatif Bank Information Technologies Department continued the Digital Transformation project, comprising location, channel and process transformation and initiated in fiscal year 2016.

Channel Transformation

In line with the Bank’s vision of going digital, new products, services and functions were delivered to the customers in the channels of ATM, Internet Banking, the Telephone Banking and the Mobile Banking. In addition, upgrades were completed to prevent fraud and counterfeit applications. Financial transactions were conducted through the Telephone Banking channel. In addition, hardware devices in the ATM network were replaced with the latest models.

Process Transformation

Both financial and non-financial banking processes are gradually being transformed according to Alternatif Bank’s plan in order to become customer-focused, and harmonious with the Bank’s vision and business requirements. Some of the projects completed in this respect include:

52 2017 ACTIVITIES

Completed Projects • Financial Crimes Investigation Board (MASAK) – Rapid Bank Statement • Corporate KKB Renovation Efficient Revenue and Risk Management • IFRS 9 Product and Channel Diversification • Central Utility Bill Registration System • SMS Loan • Alternatif Bank ALM Project • Web Loan • Defining Automatic Sweep between Accounts and Automatic • TROY Card EFT • Telephone Banking Phase I • Automation of the Credit Card Monitoring/Legal Follow-Up • Diners Club Acquiring Project Process • Diners Club Card – TAV Mile Spending Integration • LKS Feedback Reports and Online Inquiry • Contactless POS Acquisition • Work for Compliance with the Law on Protection of Personal • Virtual POS Dealership/Sub-Dealership Structure Data • POS and ATM Troy Card Usage • NLIST Lien – Contact Customer Integration • QR Code Check • PayGate Analyser Implementation • Corporate Internet Banking – Cheque Book Integration • PayGate Inspector (Customer Login – Blacklist Search) • Internet Banking – Cash Advance with Instalments Implementation • Derivative Product Harmonisation of Three-Currency Deposit • PayGate Inspector (SWIFT) Implementation Account • Customs Directorate (GİB) Cash Transaction Notifications • Integration with Alternatif Bank – NN Hayat Sigorta • Integration with UNICO Sigorta

53 ALTERNATİF BANK ANNUAL REPORT 2017

INFORMATION TECHNOLOGY

Flexible and agile project management approaches were expanded to ensure the compatibility of Alternatif Bank’s business and information technology strategies with rapidly changing, competitive market conditions.

Efficient Process Management Product and Channel Diversity • New Loan Processes • Telephone Banking Phase 2 • Credit Card Flow – Experian Decision Support Systems • ATM – EFT Transactions Module Integration • Cash Register POS Integrations • Automation of Gold Swap Transactions • POS Payment Collections Automation Efficient Process Management • IRR Interest Rate Calculation • Risk Data Warehouse • CGF Infrastructure Update • EVAS Notifications • Cash Flow Receiving Bank Automation • IRS and CCS Operations Automation • Automated Transfer Between Cash Centres • Treasury Module Process Improvements • Process Management System • KPS Integration for New Identity Cards Customer Focus • BONUS POS Additional Instalments and Card Instalment Customer-Focus Scheme • Foreign Currency Bulk Payment • All Access ATM • Mobile Banking – Credit Card Module • New Functionality for Mobile Banking Infrastructure • Alternatif Bank Digital – VOV Account Application Process • CyberArk Server, PC and Network Devices Password • Internet Banking – Cheque Visualisation Management

Infrastructure Project Management • Web Application Firewall • APT Target-Oriented Attack Prevention System Alternatif Bank has extended the scope of its flexible, agile • Automic IT Operations Automation project management approach to ensure compatibility of • Security Infrastructure Improvement for Risk Centre Services Alternatif Bank business and information technology strategies with rapidly changing, competitive market conditions. Ongoing Projects Periodic reports were provided to senior management to ensure information technology visibility and to support fast, accurate decision-making processes. Infrastructure studies Efficient Revenue and Risk Management were conducted to measure and follow up the benefits of new • Electronic Letter of Guarantee products, services and applications developed under various • Customs Directorate (GİB) Other Transaction Notifications projects. Integration • Customs and Trade Ministry (GTB) E-Lien Integration Project Information Security Strategies • Credit Bureau (KKB) Intelligence Cross Control • Debit Card with Chip In 2017, the Bank’s information security strategies, plans and management which are key elements of the information

54 2017 ACTIVITIES

technology management initiative, were kept up to date on an information security event/breach management, leakage ongoing basis in line with current threats and potential cyber- and internal vulnerability tests, access and user authorisation attack scenarios. The elements included in the transformation management, recordkeeping, and installation, review process, were submitted to legislation and self-assessment and Management oversight of the information security penetration test, vulnerability scans and layered security management system, architecture was built in order to guarantee the cyber security of • Facilitating Business Continuity and Disaster Recovery the Bank. These tests covered alternative distribution channels planning, as well; all online and mobile channels were duly audited. The • Improving physical security practices, Bank resolved all problems identified in the previous period, • Increasing the effectiveness of information security controls carefully followed the prepared action plans, and carried out and raising information security awareness through Human necessary measures. Resources Training Efforts, • Improving supplier management and business process Alternative distribution channels were included in the tests. management. Alternatif Bank carried out efforts to measure the awareness of information security and social engineering. The Bank also Certification Efforts organised awareness-raising activities. New measurements confirmed an increase in awareness. These awareness-raising Committed to running all operational procedures at efforts will continue in the future. Alternatif Bank stepped internationally recognised standards, Alternatif Bank maintained up security measures against DDOS, malware and other cyber its first certificate, its ISO 9001:2008 Quality Management threats. The Bank’s systems were checked against such attacks System and ISO 27001:2013 Information Security Management, via penetration testing. ISO 10002 Customer Satisfaction Management System certificates —obtained in fiscal year 2015—as a result of the Findings from the previous period were resolved, action plans external audit performed in 2017. were followed carefully, and necessary measures were taken. Certifications Received in 2017: Alternatif Bank maintained continuous communication with national and sector-wide “Cyber Event Intervention Teams.” The • ISO 22301 International Business Continuity Management: Bank continued to improve its security structures according to ISO 22301, Business Continuity Management (BCM) provides up-to-date weakness reports, notifications, analyses and results. clear assurance that an enterprise is fully ready to serve its The upgraded central trace recording management system stakeholders, and that it has the ability to meet expectations was integrated and correlated with the privileged account toward both internal and external customers. management system. • ISO 20000 Information Technologies Service Management Under the Information Security Governance system, the System: necessary control and monitoring processes were fulfilled; The ISO 20000-1 standard pertains to an IT company’s method actions indicated in the new information security plan were of managing its operations. The ISO/IEC 20000: 2005 standard taken. determines the level that must be met when providing services to customers. Information Security Management System • BS 10012 Data Protection Personal Information Management The Information Security Management System is a management System: system that encompasses people, processes, and information The BS 10012 standard is a how-to guide in protecting data. technologies, and that is supported by the Senior Management, This standard focuses on improving an enterprise’s methods for aimed at ensuring corporate information security. It is designed storing data and transferring this data to transactions. to safeguard information assets and to ensure reassuring, adequate and commensurate security controls. In April 2017, the first certification audit was conducted by auditors from TÜRKAK (Turkish Accreditation Authority) related The ISO 27001 Information Security Management System to this new certification. The audit processes were successfully covers the corporate organisation, policies, planning activities, completed and the Bank has received three new certifications. responsibilities, practices, procedures, processes, and resources. In 2018, monitoring audits will be conducted for these The Information Security Management System is aimed at: certifications.

Generating accurate, reliable and valid information, Together with these certifications, Alternatif Bank holds six Improving banking practices, quality certifications related to its processes. • Making improvements in the Information Security, IT Systems • Infrastructure, IT Network, Communication Infrastructure, 22301 International Business Continuity Management: ISO Information 22301 Business Continuity Management (BCM) certification • Technology Technical Support process and practices such as guarantees that a firm is fully ready to serve its stakeholders, creation of an asset inventory, classification of information and that it can meet the expectations of both internal and assets, assessment of assets based on the confidentiality/ external customers. integrity/accessibility criteria, change management, 55 ALTERNATİF BANK ANNUAL REPORT 2017

INFORMATION TECHNOLOGY

ISO 20000 Information Technology Service Management ISO 10002 Customer Satisfaction Management System: This System: The ISO 20000-1 Standard pertains to the way an system sets guidelines to establish a complaint management information technology company manages its operations. The system and to help identify complaints, their causes and methods ISO/IEC 20000: 2005 standard, on the other hand, specifies with the goal of eliminating them. It defines the management the level that must be achieved when providing services to tools necessary to manage standard customer complaints more customers. effectively and efficiently, resulting in higher numbers of customers satisfied with the service provided. BS 10012 Data Protection Personal Information Management System: This system provides guidance on how to protect ISO 9001: 2008 Quality Management System: This system helps data. It is a standard that encompasses the improvement of the Bank monitor and manage all operational processes in the companies’ data storage and protection, and enhancement of best possible way. ISO 9001, the world’s most widespread quality the data’s transfer to transactions. management standard, allows organisations to enhance their quality and sustainability in service and performance management. ISO/IEC 27001 2013 Information Security Management System: This system is the international standard for Efforts related to audit processes are managed by the information security management. It outlines how to install Information Security, Quality and Project Management an information security management system that passes Department. In 2018, the Department plans to carry out the independent evaluation. The system allows for more effective necessary improvements/arrangements to extend those protection of all financial and confidential data while minimizing certifications whose surveillance audits are complete and that the possibility of unauthorised and illicit access. need to be renewed. As a result, the continuity of the Bank’s certifications will be ensured.

56 2017 ACTIVITIES

ALTERNATIF BANK’S FINANCIAL SUBSIDIARIES

Alternatif Alternatif Lease Menkul 99.99% 100%

Alternatif Finansal Kiralama A.Ş. (Alternatif Lease) Alternatif Menkul Değerler A.Ş. (Alternatif Menkul) An Anadolu Group company established in 1997 and operating Established in 1997 as a subsidiary of Alternatif Bank, Alternatif in the financial services sector, Alternatif Lease was acquired Menkul is a notable player in the sector with successful by Alternatif Bank in 2013. Having capital of TL 50 million, the investment advisory and asset management services for company provides financial leasing services at high-quality institutional and individual investors, in addition to brokerage standards to a distinguished client group from four branch services in the capital markets. Granted authorisation in all locations. During the year, the Company’s total assets grew fields of activity by the CMB, Alternatif Menkul delivers a broad 140.05% to TL 1,702 million, while shareholders’ equity went up range of services in brokerage, asset management and corporate 105.23% to TL 157 million. finance.

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CORPORATE GOVERNANCE

BOARD OF DIRECTORS

Omer Hussain I H Alfardan Joseph Abraham Chairman Vice-Chairman Mr. Omer Alfardan is the President and CEO of Alfardan Group, Mr. Abraham is the Group Chief Executive Officer of The one of Qatar’s leading family-owned business conglomerates. Commercial Bank as well as Vice-Chairman of the Board of The Group has expanded exponentially under his esteemed Directors of Alternatif Bank and a Board Director of the United leadership, with the 60-year-old conglomerate investing Arab Bank, UAE. He has extensive banking experience across heavily in major industries such as automotive, properties, and both developed and emerging markets. Before joining The hospitality, to name a few, as part of its growth strategies and Commercial Bank in June 2016, he was CEO of ANZ Indonesia efforts to contribute to Qatar’s socio-economic development. (Australia and New Zealand Banking Group) based in Jakarta, a Its reach extends far beyond the borders of Qatar, building its position he served in from 2008 to 2016. Mr. Abraham has an presence in other parts of the GCC and nearby strategic countries MBA from the Graduate School of Business, Stanford University, through its subsidiaries. One of Alfardan Group’s recent critical California and has worked in Indonesia, Singapore, Hong Kong, business moves was investing in Turkey’s flourishing hospitality Ghana, UK and India in various country and regional banking roles sector in line with its expansion policy. A Board Member of with a successful track record covering general management, Alfardan Jewellery, Alfardan Investment, Alfardan Exchange, corporate banking, strategy, product management as well as and Alfardan Marine Services, Mr. Alfardan concurrently holds acquisitions and integrations. Mr. Abraham was appointed as a key positions in various renowned organisations, as well. He is Board Member of Alternatif Bank in December 2016. the Managing Director of The Commercial Bank; Advisory Board Member of Qatar Financial Centre Authority; and Vice Chairman of the Board of Directors and Chairman of the Board Executive Committee of the United Arab Bank in the UAE. Mr. Alfardan is also the Managing Director of Marsa Arabia and Board Member of Qatar Red Crescent Society. He has been serving as the Chairman of the Board of Directors of Alternatif Bank since 2014. He earned his Bachelor’s Degree in Business Administration and a Master’s Degree in Finance from Webster University in Geneva, Switzerland.

58 MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES

Fahad Badar Izzat Dajani Board Member Board Member Mr. Badar’s career at The Commercial Bank spans over 18 Mr. Dajani is a seasoned banker, civic and business leader, and years. Prior to his current role as Executive General Manager, well-known investment professional. He is recognised for his International Banking, Mr. Badar held a number of key roles in leadership roles in Banking, Corporate Advisory, Investment the International Banking, the Government and Public Sector Management, and Private Equity across countries in the Middle Relations and the Wholesale Banking Divisions. Mr. Badar holds East, Turkey, Australia and East Asia. Mr. Dajani has an MPA an MBA from Durham University (UK), and a Bachelors of Arts from Harvard University, and has completed the Executive degree in Banking & Finance from the University of Wales (UK). Management Programme at Stanford University Graduate Mr. Badar joined Alternatif Bank as a Board Member in August School of Business. Mr Dajani was Chairman and CEO of Citibank 2013 and is also the Vice-Chairman of the Alternatif Lease in Qatar. He was also Head of Key Clients of the Investment Board. Mr. Badar is also a Board Member of National Bank of Management Division at Goldman Sachs in DIFC, Dubai, covering Oman (NBO) in Oman and a Board Member of United Arab Bank Goldman’s large relationships and complex transactions in the (UAB) in UAE. MENA region. Mr. Dajani was Chief Executive of the Investment & Development Office, leading major investment activities of this RAK Sovereign Wealth Fund in UAE, and managing multi-billion dollar investments. Mr. Dajani served as Advisor to the Board of Directors of United Arab Bank in UAE. He is a member of the Advisory Council of Humania Capital, an Asset Manager in Healthcare and Life Sciences. Mr. Dajani served as Chairman and Board Member of various large corporations in the oil & gas, industrial, real estate, hospitality, education and healthcare sectors. Mr. Dajani has been serving uninterruptedly as a Member of the Board of Directors of Alternatif Bank since July 2013. He is Chairman of Alternatif Lease and has also assumed chairmanship and membership of a number of Board Committees.

59 ALTERNATİF BANK ANNUAL REPORT 2017

CORPORATE GOVERNANCE

Mohd Ismail M Mandani Al-Emadi Ali Saleh N Al-Fadala Board Member Board Member Mr. Al-Emadi graduated from Holy Names College, California Mr. Al-Fadala brings strong leadership and insurance knowledge with a Bachelor of Arts degree in Business Administration and through many years’ experience within the insurance and Economics and has over 30 years of banking experience. Mr. financial sector. In 1982, he commenced his career in the Civil Al-Emadi has held a number of key roles at The Commercial Bank Affairs Bureau for a period of 5 years. Upon joining the Qatar from 1982 until 2007, after which he served as Chief Executive Insurance Company SAQ in 1986, his extensive experience Officer of Qatar Real Estate Investment Company up to 2011 within different departments, holding various positions spans and also served as its Director from 2003 until 2005. Mr. Al- over 24 years. He then joined Damman Insurance Company as Emadi has also served as a Board Member for Doha Securities the Chief Executive Officer and held this position for a period of Market, Qatar from 2000 to 2003; Qatar Shipping Co. (P.S.Q.C.) three years, only to return to Qatar Insurance Company SAQ in from 2000 to 2006; and Mannai Corporation Co. (P.S.Q.C.) Qatar January 2013 to fulfil the role of Senior Deputy Group President from 2001 to 2004. Mr. Al-Emadi currently serves as a Board & CEO which he currently holds today. In 2015, Mr. Al-Fadala was Member of The Commercial Bank and a Board Member of the appointed as a Board Director for The Commercial Bank. He has National Bank of Oman. Mr. Al-Emadi joined Alternatif Bank as a joined Board of Directors of Alternatif Bank in June 2017. Board Member in September 2014 and is Chair of the Board Risk Committee.

60 MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES

Turgay Gönensin Zafer Kurtul Board Member Board Member Mr. Gönensin is a seasoned banker with extensive knowledge Mr. Kurtul received his undergraduate degree in Finance from and deep experience of more than 30 years. He graduated Istanbul University, Faculty of Business Administration and from Istanbul Saint Joseph High School and completed his obtained his MBA degree in Finance from the University of university degree at Boğaziçi University, Faculty of Business Wisconsin-Madison (USA). He held several executive roles at Administration. He started his career at Interbank where he Citibank, BNP-Ak-Dresdner Bank and Societe Generale prior to worked between 1985 and 1987. Mr. Gönensin assumed various his appointment as an EVP at Akbank in 1998. Between 2000 roles and responsibilities at Garanti Bank between 1987 and and 2009, Mr. Kurtul served as the CEO of Akbank and held the 1995. After serving as an Executive Vice President at Finansbank role of Board Vice Chairman until 2010. He then worked as the until 1997, he took the role of CEO at Garanti Bank International CEO and Board Member of Sabancı Holding until 2017. In the from 1997 to 2000. Subsequently, he became the CEO of same period, he was the Board Chairman of various subsidiaries Osmanlı Bank in 2000 and held this role until 2001. Between of Sabancı Holding. He was appointed as a Board Member of 2001 and 2015 Mr. Gönensin worked at Garanti Bank initially as Alternatif Bank in 2017. Mr. Kurtul is a qualified Chartered an Executive Vice President in charge of Commercial Banking, Financial Analyst (CFA). followed by his role as the EVP for Coordination of Domestic and International Participations in the last two years. He assumed the roles of Chairman and Board Member at various domestic and international subsidiaries of Garanti Bank during the period 2015 – 2017. Mr. Gönensin was appointed as a Board Member of Alternatif Bank in 2017. He is fluent both in English and French and is married with three children.

61 ALTERNATİF BANK ANNUAL REPORT 2017

CORPORATE GOVERNANCE

Board of Directors Meetings Following table shows the Board of Directors’ meeting dates throughout 2017 as well as number of Board Members present at each meeting:

Number of the Meeting Date Members Present 31.01.2017 7 25.04.2017 8 21.07.2017 9 04.10.2017 9 27.11.2017 8 11.12.2017 7

Kaan Gür Board Member and CEO Kaan Gür has 29 years of professional experience in the banking industry. He received his bachelor’s degree from Gazi University, Department of Banking and Insurance. Mr. Gür started his professional career at Garanti Bank, served as a Branch Manager and a Regional Director in Corporate, Commercial and SME Banking, before becoming Marketing Coordinator in charge of SME division. In 2011, he joined Akbank as Executive Vice President in charge of SME Banking Division. From 2011 to 2017, he served as the Commercial Banking EVP at Akbank, in addition to performing the roles of Chairman of Ak Lease and Vice Chairman of Ak Investment, both Akbank subsidiaries. In October 2017, Mr. Gür joined Alternatif Bank as the CEO and Board Member.

62 MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES

NAMES, TERMS OF OFFICE, RESPONSIBILITIES, EDUCATIONAL BACKGROUNDS AND PROFESSIONAL EXPERIENCE OF THE CHAIRMAN AND MEMBERS OF THE BOARD OF DIRECTORS, MEMBERS OF THE BOARD AUDIT AND COMPLIANCE COMMITTEE, CHIEF EXECUTIVE OFFICER, EXECUTIVE VICE PRESIDENTS, AND MANAGERS OF INTERNAL SYSTEMS UNITS

Banking or Business Date of Management Name Position Appointment Academic Degree Area of Responsibility Experience (years) Chairman and Members of Board of Directors Webster University Omer Hussain I H Chairman 16.09.2014 (Switzerland), Master’s - 24 Alfardan Degree in Finance Chairman of Executive Committee of the Board, Chairman of Remuneration Committee of the Board, Joseph Abraham Vice-Chairman 19.12.2016 Stanford University, MBA 25 Member of Board Audit and Compliance Committee, and Alternate Member of Board Credit Committee Fahad Abdulrahman University of Durham Member of Board Credit Member 01.08.2013 16 Badar (UK), MBA Committee Member of Executive Committee of the Board, Member of Remuneration Izzat Dajani Member 18.07.2013 Harvard University, MPA 24 Committee of the Board, and Member of Board Audit and Compliance Committee Al Khour High School Member of Board Risk Ali Saleh N Al-Fadala Member 19.06.2017 36 Diploma (Qatar) Committee Holy Names College (USA), Mohd İsmail M Mandani Bachelor of Arts Degree in Chairman of Board Risk Member 16.09.2014 35 Al-Emadi Business Administration and Committee Economics Chairman of Board Credit Boğaziçi University, Committee, and Turgay Gönensin Member 07.09.2017 Bachelor of Arts in Business 33 Member of Executive Committee Administration of the Board Chairman of Board Audit and Compliance Committee, Member of Executive Committee Istanbul University, BA in of the Board, Finance; Madison University Member of Remuneration Zafer Kurtul Member 07.09.2017 35 (USA), Master of Science in Committee of the Board, Finance Member of Board Risk Committee, and Alternate Member of Board Credit Committee Member of Executive Committee Gazi University, Graduate of the Board, and Kaan Gür Member, CEO 02.10.2017 Degree in Banking and 29 Member of Board Credit Insurance Committee

1. Gerard George Rizk resigned from his role as Member of the Board of Directors as per the Board Resolution No. 2 dated 18 January 2017. 2. As per the decision at the Alternatif Bank Annual General Meeting on 29 March 2017, Kimberley Ann Reid was appointed as Member of the Board of Directors. 3. Kimberley Ann Reid resigned from her role as Member of the Board of Directors and Ali Saleh N Al-Fadala was appointed as Member of the Board of Directors as per the Board Resolutions No. 44 and 45 dated 13 April 2017. 4. Didem Çerçi and Paul Gossiaux resigned from their roles as Members of the Board of Directors and Turgay Gönensin and Zafer Kurtul were appointed as Members of the Board of Directors as per the Board Resolutions No. 97 and 98 dated 9 August 2017. 5. Kaan Gür was appointed as CEO and Member of the Board of Directors as per Board Resolution No. 106 dated 19 September 2017.

63 ALTERNATİF BANK ANNUAL REPORT 2017

NAMES, TERMS OF OFFICE, RESPONSIBILITIES, EDUCATIONAL BACKGROUNDS AND PROFESSIONAL EXPERIENCE OF THE CHAIRMAN AND MEMBERS OF THE BOARD OF DIRECTORS, MEMBERS OF THE BOARD AUDIT AND COMPLIANCE COMMITTEE, CHIEF EXECUTIVE OFFICER, EXECUTIVE VICE PRESIDENTS, AND MANAGERS OF INTERNAL SYSTEMS UNITS

Banking or Business Management Date of Area of Experience Name Position Appointment Academic Degree Responsibility (years) Chief Executive Officer and Executive Vice Presidents Kaan Gür CEO 02.10.2017 Gazi University Banking and Insurance CEO 29 Seher Demet Tanrıöver Boğaziçi University Faculty of Business CRO 08.09.2014 Risk Management 24 Çaldağ Administration Middle East Technical University, Faculty Ahmet Kağan Yıldırım EVP 27.04.2016 Corporate Banking 22 of Economics and Administrative Sciences Treasury Group, and Istanbul Technical University Faculty of Financial Affairs and Boğaç Levent Güven EVP 08.02.2017 18 Business Administration Planning (in acting capacity) Boğaziçi University Faculty of Economic Esra Kıvrak EVP 18.12.2017 Business Banking 27 and Administrative Sciences Istanbul University Faculty of Business Muzaffer Gökhan Administration / Marmara University Credit Risk EVP 01.01.2015 14 Songül International Economics (Master’s Degree) Management / Kadir Has University (Doctorate Degree) Hacettepe University, Faculty of Economic Special Assets Musa Kerim Mutluay EVP 01.01.2015 and Administrative Sciences (Master’s 19 Management Degree) Middle East Technical University, Faculty Operations and (in Suat Çetin EVP 03.09.2012 19 of Economic and Administrative Sciences acting capacity) IT University of Wisconsin / The American Şakir Sömek EVP 14.03.2008 Financial Institutions 28 Un. Econ. (Master’s Degree) Middle East Technical University Faculty of Durul Selçuk EVP 24.10.2016 Human Resources 23 Business Administration and Economics Erkan Ayaz Group Head 19.10.2015 Istanbul University Law School Legal Group 22 Istanbul University Faculty of Economics Mustafa Mutlu Çalışkan Chief Audit 31.10.2011 Internal Audit 23 (English) Internal Audit Middle East Technical University Faculty of Internal Control Gürsoy Zorlu 16.06.2017 11 Coordinator Economic and Administrative Sciences Department Middle East Technical University Faculty Legislation and Hamdi İlkay Girgin Manager 15.12.2010 of Economics / Imperial College London 16 Compliance (MBA)

64 MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES

TERMS OF OFFICE AND PROFESSIONAL EXPERIENCE OF EXTERNAL AUDITORS

At the Bank’s 2017 Annual General Meeting held on 29 March 2018, it was decided to designate KPMG Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş. (KPMG) as the Independent Auditor pursuant to the Banking Law, CMB legislation and the Turkish Commercial Code. The said company has conducted the independent external audit of the Bank since 2014.

65 ALTERNATİF BANK ANNUAL REPORT 2017

ACTIVITIES OF THE BOARD CREDIT COMMITTEE, ACTIVITIES OF THE COMMITTEES REPORTING TO, OR SET UP TO ASSIST THE BOARD OF DIRECTORS IN THE FRAMEWORK OF RISK MANAGEMENT SYSTEMS UNDER THE REGULATION ON THE INTERNAL SYSTEMS OF BANKS; AS WELL AS NAMES AND PRINCIPAL DUTIES OF THE CHAIRMEN AND MEMBERS SERVING ON SUCH COMMITTEES

Committees under the Board of Directors Board Credit Committee convened a total of 18 times with the attendance of all members on the below dates during the course Board Credit Committee of 2017: The Bank’s Board Credit Committee is responsible for handling matters related to credit facilities within the limits provided Meeting Date Number of Members Present in accordance with the applicable legislation. The Committee 12.01.2017 3 reviews, discusses, and decides on those credit proposals that 08.02.2017 3 are submitted for its approval by the Management. Unanimous 14.03.2017 3 decisions on credit proposals that fall within the delegated 29.03.2017 3 credit approval authority of the Board Credit Committee are executed with immediate effect. On the other hand, decisions 18.04.2017 3 that are taken by majority of votes are executed after the 09.05.2017 3 Board of Directors’ approval on the matter, regardless of the 23.05.2017 3 fact the concerned credit proposal falls within the delegated 08.06.2017 3 credit approval authority of the Board Credit Committee. The 22.06.2017 3 Committee consists of the following Board Members: 11.07.2017 3 17.08.2017 3 Board Member Name, Role within the Committee 14.09.2017 3 Turgay Gönensin, Chairman 04.10.2017 3 Fahad Abdulrahman Badar, Member 18.10.2017 3 Kaan Gür, CEO and Member Joseph Abraham, Alternate Member 31.10.2017 3 Zafer Kurtul, Alternate Member 14.11.2017 3 11.12.2017 3 The Committee’s role, responsibilities, composition, membership 26.12.2017 3 requirements and other relevant information are documented in the Risk Charter as well as relevant section of the Board Board Audit and Compliance Committee Committees Charter. The Board Audit and Compliance Committee is responsible for assisting the Board in fulfilling its responsibilities for overseeing Board Credit Committee holds its meetings on bimonthly basis. the quality and integrity of the accounting, auditing, internal Activities and decisions of the Board Credit Committee are control and financial reporting practices of the Bank as well subject to the supervision of Board of Directors. Therefore, each as setting forth compliance and anti-money laundering, and Board Member is entitled to request any kind of information combating financing of terrorism requirements, criteria and from the Board Credit Committee with respect to its activities control mechanisms for all activities involving Bank-wide related and to perform any and all controls for this purpose. risks.

66 MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES

The Committee was established pursuant to Article 24 of the The Committee is composed of the following Board Members: Banking Law No. 5411 and is composed of the following Board Members: Board Member Name, Role within the Committee Joseph Abraham, Chairman Board Member Name, Role within the Committee Izzat Dajani, Member Zafer Kurtul, Chairman Turgay Gönensin, Member Joseph Abraham, Member Zafer Kurtul, Member Izzat Dajani, Member Kaan Gür, CEO and Member

The Chairman is also responsible for coordinating and overseeing The Committee operates in accordance with the principles set the activities of departments that operate under the Internal out in the relevant section of the Board Committees Charter. Systems structure (i.e. Internal Audit, Internal Control, Compliance and Legislation and Compliance Departments). Executive Committee of the Board met a total of six times on the below dates during the course of 2017: In line with the respective legislation, Committee Members do not assume any executive function within the Bank and the Meeting Date Number of Members Present Committee’s role, responsibilities, composition, membership requirements and other information are documented in the 23.02.2017 2 relevant section of the Board Committees Charter. 21.03.2017 2 24.04.2017 5 Board Audit and Compliance Committee convened a total of 13 times on the below dates during the course of 2017: 25.05.2017 4 21.11.2017 5 Meeting Date Number of Members Present 26.12.2017 5 18.01.2017 2 Remuneration Committee of the Board 22.02.2017 2 The Remuneration Committee of the Board is established in 21.03.2017 2 accordance with the 6th principle of the “Regulation on Corporate 13.04.2017 2 Governance Principles of Banks” published by the BRSA in the Official Gazette No. 26333 of 01 November 2006 and as per the 13.04.2017 2 12th paragraph of the “Guidelines on Remuneration Policies and 31.05.2017 3 Practices of Banks” adopted with the BRSA Resolution No. 6827 18.07.2017 2 of 31 March 2016. The Remuneration Committee of the Board is responsible for evaluating the compensation and remuneration 20.07.2017 3 of the Members of Board of Directors, management and staff 28.09.2017 3 and setting the key performance indicators in line with the Bank’s strategy and policies. 11.10.2017 3 12.10.2017 3 The Committee comprises following Board Members: 17.10.2017 2 Board Member Name, Role within the Committee 08.12.2017 2 Joseph Abraham, Chairman Izzat Dajani, Member Executive Committee of the Board Zafer Kurtul, Member Established under article 366 of the Turkish Commercial Code, the Executive Committee of the Board is authorised - outside The Committee’s role, responsibilities, composition, membership of the powers and operations falling within the authority of the requirements and other information are documented in the Board of Directors - to deal with issues related to governance, relevant section of the Board Committees Charter. overall strategy of the Bank, plans, budgets, goals, policies, to give recommendations to the Board on procedures and systems and to review the performance of the Bank in accordance with legal provisions and the Bank’s Articles of Association.

Executive Committee of the Board assumes responsibility for monitoring the compliance with the Bank’s corporate governance principles, in addition to conducting improvement studies and making recommendations to the Board of Directors in this respect as defined by BRSA Corporate Governance Principles.

67 ALTERNATİF BANK ANNUAL REPORT 2017

ACTIVITIES OF THE BOARD CREDIT COMMITTEE, ACTIVITIES OF THE COMMITTEES REPORTING TO, OR SET UP TO ASSIST THE BOARD OF DIRECTORS IN THE FRAMEWORK OF RISK MANAGEMENT SYSTEMS UNDER THE REGULATION ON THE INTERNAL SYSTEMS OF BANKS; AS WELL AS NAMES AND PRINCIPAL DUTIES OF THE CHAIRMEN AND MEMBERS SERVING ON SUCH COMMITTEES

Remuneration Committee of the Board met a total of eight Board Member Name, Role within the Committee times on the below dates during the course of 2017: Mohd Ismail M Mandani Al-Emadi, Chairman Joseph Abraham, Member Ali Saleh N Al-Fadala, Member Meeting Date Number of Members Present Zafer Kurtul, Member 30.01.2017 2 The Committee operates in accordance with the Board 23.02.2017 2 Committees Charter and Risk Charter. The Committee is the 20.03.2017 2 common communication platform of the Bank’s Internal Systems Units and executive functions in order to facilitate 24.04.2017 3 assessment of the risks that the Bank is exposed to and elicits recommendations on the measures and the methods to be 25.05.2017 3 followed in response. Committee meetings are held at regular 26.10.2017 3 intervals and monitor the Bank’s risk appetite, risk profile and tolerance levels established for the consolidated group as 14.11.2017 3 prescribed by the Bank’s Risk Policy and the decisions made 11.12.2017 3 by the Board of Directors and ensure the implementation and supervision of the prescribed measures by the sub-committees and the relevant departments. Board Risk Committee The Board Risk Committee assumes responsibility for “early The Board Risk Committee met a total of five times on the below detection of risks causing any threat to the existence, dates during the course of 2017: development and survival of the Bank, for implementation of necessary measures in order to prevent risks detected and for preparation of policies and strategies that the Bank will adopt Meeting Date Number of Members Present with regard to risk management” as per Article 366 of the 25.04.2017 3 Turkish Commercial Code No. 6102 which came into effect on 01.07.2012. The composition of the Committee, which has been 01.06.2017 3 re-established in accordance with the Board Resolution No.43 dated 29.03.2017, is as follows; 20.07.2017 3 03.10.2017 3

05.12.2017 4

68 MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES

INFORMATION ON RISK MANAGEMENT POLICIES IMPLEMENTED ACCORDING TO RISK TYPES

Alternatif Bank Risk Management Group aims to identify Customer selection and monitoring of their credibility are measure, analyse, and monitor the financial and non-financial performed by expert credit teams employing internal rating risks that the Bank is or may be exposed to, in accordance with systems. The rating systems are constantly reviewed and applicable laws, rules and regulations. monitored for their performance independently by the Risk Management Department. The Bank undertakes constant Activities performed on a daily, weekly, monthly, quarterly and improvement efforts for the rating systems and takes on annual basis, depending on the nature of the issue at hand, are development of more successful statistical models for arising presented to the Bank’s Senior Management. requirements in order to achieve compliance with Basel criteria, base customer assessments on more objective criteria and thus Credit Risk improve the Bank’s risk measurement capability. As part of these Credit risk is defined as the potential loss arising from any studies, the Bank now employs this system in the evaluation borrower’s inability to meet, in part or in whole, its contractual of commercial and corporate customers with Moody’s rating obligations to the Bank. Due to the large share it takes from the system. balance sheet, credit risk is of the highest concern for the Bank and it is vital to manage it appropriately. Therefore, credit risk Market Risk management policies were set up to ensure the independence Market risk refers to the risk of loss that may occur in the value and integrity of risk assessment practices. Customer selection of positions in trading accounts due to movements in interest criteria and creditworthiness evaluation, income generation rates, share prices and exchange rates. The Bank calculates the and repayment capability and resources, credit structure of legal capital requirements for market risk by using the standard contract provisions and their compatibility with customer method, in accordance with the BRSA regulations. Moreover, needs, collateralisation principles, and comprehensive and market risks associated with trading accounts are quantified healthy documentation are the core elements of credit risk and monitored on a daily basis through the Value at Risk (VaR) management policies. Another purpose of these policies and method. The VaR calculations that use the historical simulation procedures is to ensure that all personnel who are involved in method for the last 252 business days form the basis of the the decision-making process share the same views in similar Bank’s risk-based trading limits. In addition, the Bank monitors matters and take similar actions. Another major element of its trading portfolio for losses under extraordinary conditions credit risk management policies is the monitoring process that using Stress VaR, forecasts potential losses under extreme needs to be administered to ensure unproblematic repayment market movements, and tries to manage these potential losses. of the loan to the Bank once the lending relationship begins. The trading portfolio risks, which are quantified and reported The Bank’s risk exposure, either on- or off-balance sheet, are to the Bank’s Management on a daily basis, are also assessed monitored and managed both individually and also on a portfolio periodically at the ALCO and the Management Risk Committee basis. Within this scope, the NPL management system monitors meetings. the loan portfolio in a systematic fashion. Alternatif Bank’s potentially non-performing customers are identified in advance The validity of the VaR model is monitored through back testing. and necessary actions are taken. In addition, the development In this methodology, the daily VaR, which is calculated by the of NPLs is monitored closely and reported on a regular basis. In VaR model, is compared both with the theoretical losses/ order to maintain the structure and quality of its loan portfolio at gains and also with the actual losses/gains the next business the desired level, the Bank regularly analyses the distribution of day based on the existing portfolio, and deviations, if any, are this portfolio in terms of sector, collateral, loan size and rating. monitored. The Bank also conducts scenario analyses and stress tests at regular intervals.

69 ALTERNATİF BANK ANNUAL REPORT 2017

INFORMATION ON RISK MANAGEMENT POLICIES IMPLEMENTED ACCORDING TO RISK TYPES

Structural Interest Rate Risk Liquidity Risk Structural interest rate risks are those risks that the Bank is The purpose of liquidity risk management is to ensure that exposed to through products such as credits, securities and necessary precautions are taken in a timely and appropriate deposits, which bear interest sensitivity despite being monitored manner to address possible liquidity crises associated with in non-trading accounts. The Bank aims to keep changes in the cash-flow mismatches caused by market conditions and/or the economic value of equity within the limits, in the event that the Bank’s balance sheet structure. It is founded on the premise that Bank is subject to standard interest rate shocks determined by the Bank’s cash holdings and available borrowing resources are the BRSA as well as internal interest rate shocks. In addition to adequate to cover, in a timely manner and at pre-determined the change in the Bank’s net economic value, Alternatif Bank levels, deposits and other liabilities that create a need for also monitors the earnings at risk (EaR) level due to interest liquidity. The Bank monitors its liquidity position in each currency rate fluctuations and ensures that the changes in the income separately, as well as in terms of total liquidity. that will be generated by the balance sheet remain within certain limits. Duration/gap reports are produced by placing In the framework of liquidity risk management, it is aimed to those financial products that are monitored in non-trading maximise the Bank’s profit compared to its existing liquidity accounts into the cash flow statements on a currency basis, risks. Cash flow and liquidity on the Bank’s balance sheet according to the repricing periods or durations. The structural are tracked on the basis of regulatory thresholds as well as interest rate risk arising from maturity mismatch is measured internally-defined parameters; they are tested under various by applying standard interest rate shocks to the gaps on a stress scenarios and the results are reported to the related maturity tranche basis and the risk is continuously monitored Committees and the Senior Management. for its compliance with determined limits. The interest sensitivity of the balance sheet is measured regularly by the Risk Management Department and evaluated in Asset Liability Committee meetings. When required, interest rate risk is hedged or limited with derivatives transactions. The Asset Liability Committee takes necessary actions to maintain the Bank’s net economic value and to create a stable income structure. The balance sheet’s interest rate risk level and the actions taken by the ALCO are also reported periodically to the Management Risk Committee.

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Operational Risk and Business Continuity Management • Internal policies and procedures based on the Bank’s strategy Operational risk is defined as the possibility of a direct or continued to be implemented effectively in 2017 with the aim indirect loss the Bank is exposed to, which is caused by people, of pursuing advanced risk management practices. processes, systems or external factors. The Risk Management • New investments were made in measurement and evaluation Department is responsible for defining, measuring and following systems, a major component of effective risk management, up operational risks, as well as for coordinating respective which enhanced the Bank’s risk management capability. These managerial initiatives. All related units, particularly the Internal efforts are expected to continue at an accelerated pace in Control and Board of Internal Auditors contribute to the efforts 2018. aimed at determining and eliminating the operational risks that • Risk-adjusted return and effective capital allocation were arise during the Bank’s operations. Risks are identified via the raised to a more prominent role at the core of the Bank. Risk Control Self-Assessment study and controls are conducted Efforts were finalised to switch to a risk/return-based to counter these risks. performance process. Implementations are put into practice across the entire Bank. The compliance of all activities with applicable regulations and • The Bank sees Human Resources as one of the most with the Bank’s procedures and policies is monitored closely. The significant factors in realising its strategy and attaining its most important elements of the operational risk management sustainable growth goal. In an attempt to ensure the across- framework are based on designing all processes across the the-board adoption of the targeted “world-class risk culture” Bank in a way that minimises operational risks; establishing within the Bank, creation of an Analytics team in the risk an effective internal control organisation that encompasses management staff increased the effectiveness of the risk systemic control structures; and creating and executing a tiered management process. and transparent resolution, monitoring and management • Oversight of the Senior Management is a key element of process for operational risk events. an effective risk management framework. Increasing the influence of the Board of Directors and Management-level Records of events leading to monetary losses are stored in committees made a major contribution to ensuring the a database established to follow up on operational risks. integrity of the risk management process. Operational events that frequently occur or lead to significant losses are evaluated by the Risk Committee, and making in Information on the Activities and Reports of the Board of depth analysis upon which necessary action plans are produced Directors Risk Committee and the efficiency of control and audit is enhanced so as to The Board of Directors Risk Committee is responsible for the manage these events. risk management of the entire Bank, including credit, market, operational, regulatory and reputation risks. Business Continuity Management aims to manage the risks that threaten the continuity of the Bank’s critical processes, The Committee’s responsibilities include assessing the risk and to ensure the recovery of these processes in targeted management strategies and policies; setting limits for main periods. Policies under the scope of Business Continuity are risk elements the Bank faces; monitoring the breaches of limits; updated annually and presented for the approval of the Board of overseeing the risk identification, definition, measurement, Directors. The Bank’s Disaster Centre tests are conducted every evaluation, and management processes; ensuring the accuracy year with the participation of the relevant units, with the results of risk measurement methods and results through supervision; and actions shared with Senior Management and the Board of taking the necessary steps to create an effective internal control Directors. mechanism that encompasses risk management, information systems, and the processes in an attempt to minimise Risk Management Activities and Developments the risks that can also have adverse effects on the Bank’s In addition to its new strategy and growth targets, Alternatif shareholders and stakeholders; and internalising the risk culture. Bank has adopted the primary goal of building a sound capital The Committee regularly reports its activities as well as its structure and a sustainable growth trajectory based on a world- assessments and recommendations regarding the Bank’s overall class risk management culture. In accordance with the Bank’s risk appetite and profile to the Board of Directors. strategies:

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SENIOR MANAGEMENT

Kaan Gür Demet Çaldağ Kağan Yıldırım Board Member and CEO CRO Executive Vice President Kaan Gür has 29 years of professional Ms. Çaldağ graduated from Boğaziçi (Corporate Banking) experience in the banking industry. He University, Business Administration Mr. Yıldırım graduated from Middle East received his bachelor’s degree from Gazi Department. From 1992 to 1995, Technical University, Political Science University, Department of Banking and she worked at Saudi American Bank. and Public Administration Department. Insurance. Mr. Gür started his professional Subsequently, Mrs. Çaldağ held various Subsequently, he worked as Assistant career at Garanti Bank, served as a Branch positions at ING Bank between 1997 and Manager at Finansbank Corporate Banking Manager and a Regional Director in 2004, before continuing her career at between 1996 and 2000. Mr. Yıldırım went Corporate, Commercial and SME Banking, ABN AMRO from 2004 to 2010. Between on to work at HSBC Bank from 2000 to before becoming Marketing Coordinator 2010 and 2014, she worked as Corporate 2002 and at Citibank from 2002 until 2012, in charge of SME division. In 2011, he Loans Manager at Royal Bank of Scotland in various positions. Between August joined Akbank as Executive Vice President PLC and as CRO responsible for CEEMEA 2012 and December 2014, he served as in charge of SME Banking Division. From Emerging Markets. Since September 2014, Executive Vice President – International 2011 to 2017, he served as the Commercial she has served as CRO at Alternatif Bank. Banking at The Commercial Bank, From Banking EVP at Akbank, in addition to 2015 onwards, Mr. Yıldırım has served performing the roles of Chairman of Ak as Executive Vice President – Corporate Lease and Vice Chairman of Ak Investment, Banking at Alternatif Bank. He was both Akbank subsidiaries. In October 2017, appointed Executive Vice President in May Mr. Gür joined Alternatif Bank as the CEO 2016. and Board Member.

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Esra Kıvrak Durul Selçuk Suat Çetin Executive Vice President Executive Vice President Executive Vice President (Business Banking) (Human Resources) (Operations, and in acting capacity IT) Ms. Kıvrak graduated from Nişantaşı Mr. Selçuk graduated from Middle East Mr. Çetin graduated from Middle East Anatolian High School and Boğaziçi Technical University, Political Science Technical University, Department of University, Department of Political Science. and Public Administration Department Public Administration. He started his She joined Pamukbank as a Management in 1994. Subsequently, he worked at professional career as Assistant Specialist Trainee in 1989 and went on to work at Yapı Kredi Bank as Branch Distribution at Turkey Statistics Institute, holding this Bank Ekspres as Marketing and Branch Support Specialist (MT) from 1994 to position from 1991 to 1993. Between Manager between 1994 and 1998. Ms. 1997. Between 1997 and 2003, Mr. Selçuk 1993 and 2001, Mr. Çetin was the Treasury Kıvrak served as Director of the Kabataş served in various positions in the Human Operations Unit Manager at Ottoman Branch at Ottoman Bank from 1998 to Resources Department at Sabancı Holding. Bank. In 2002, he assumed the role of 2002. She worked at Garanti Bank as Later, he joined Citibank and worked as Project Leader at Akbank in the Research Branch Manager of the Maçka and Istanbul Vice President of Human Resources from Department. From 2002 until 2006, Corporate Branches between 2002 and 2003 to 2013. Mr. Selçuk served as Head he served as Central Operations Group 2007; Europe-3 Region Manager from of the Human Resources Department President at Koçbank. Between 2006 and 2007 to 2011; and SME Banking and at Burgan Bank between 2013 and 2012, Mr. Çetin worked as Operations Marketing Unit Coordinator between 2016. Since October 2016, he has been Group Director at Yapı Kredi Bank. Since 2011 and 2017. Since December 2017, the Executive Vice President – Human September 2012, he has been the Ms. Kıvrak has served as Executive Vice Resources at Alternatif Bank. Executive Vice President – Operations at President – Business Banking at Alternatif Alternatif Bank. Bank.

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SENIOR MANAGEMENT

Şakir Sömek Kerim Mutluay Muzaffer Gökhan Songül Executive Vice President Executive Vice President Executive Vice President (Financial Institutions) (Special Assets Management) (Credit Risk Management) Mr. Sömek studied Economics at The Mr. Mutluay graduated from Hacettepe Muzaffer Gökhan Songül graduated from American University and Business University, Department of Public Istanbul University, Faculty of Political Administration at the University of Administration and obtained his Master’s Sciences, and Department of Business Wisconsin. From 1988 to 1989, he worked degree in Public Administration and Administration and later he received his at Turkish Bank Cyprus, and served as Political Science from the same institution Master’s degree from Marmara University, Assistant Manager at Industrial Bank of in 2001. He started his professional career Department of International Economics Cyprus between 1989 and 1991. After at Yaşar Bank, working as Management in 2005. He is currently a Ph.D. candidate having worked as Manager at Shaha Trainee in the Financial Analysis in Finance and Banking at Kadir Has International Ltd., Cyprus Credit Card Department between 1998 and 2000. Mr. University. Between 2001 and 2004, he Co. and Körfezbank, Mr. Sömek joined Mutluay held various positions at Oyak worked as a finance manager in the private Alternatif Bank in 1998, where he served Bank from 2003 to 2006. He worked in sector. He served as VP in the Corporate as Manager until 2007. In 2008, he was various positions at ING Bank between and Commercial Loans Department with appointed Executive Vice President – 2006 and 2014, serving as Group Manager responsibility for Project Finance Loans International Financial Institutions at in the NPL Department from 2013 to 2014. at Garanti Bank from September 2004 Alternatif Bank. Mr. Mutluay worked as Group Manager until June 2007; Credit Underwriting VP in charge of Monitoring, Special Assets at the ABN AMRO Bank Turkey office Management at Alternatif Bank between between June 2007 and April 2010; Senior July 2014 and December 2014. Since Credit Underwriting Director and Deputy January 2015, Mr. Mutluay has served as CRO at Royal Bank of Scotland Istanbul Executive Vice President – Special Assets Branch from April 2010 to July 2014; and Management. Board Member and CRO at Royal Bank of Scotland Istanbul Branch between July 2014 and November 2014. Muzaffer Gökhan Songül has been serving as Executive Vice President of Alternatif Bank responsible for Credit Risk Management since January 1, 2015.

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Levent Güven Mutlu Çalışkan Executive Vice President Head of Internal Audit (Treasury Group, and in Acting Capacity Mr. Çalışkan attended Galatasaray High Financial Affairs and Planning) School and graduated from Istanbul Mr. Güven attended Şehremini High School University, Faculty of Economics (English) in Istanbul and graduated from Istanbul in 1993. He worked as Assistant Auditor Technical University, Department of in the Internal Audit Department at Business Engineering in 1994. He worked İktisatbank between 1996 and 1998, and as Dealer at Turkish Bank in the Treasury then Manager of the same department Department between 1996 and 1997; from 1998 to 2002. Mr. Çalışkan went on to Dealer at Ulusal Bank in the Treasury become Director of the Accounting, Budget Department from 1997 to 1998; and and Management Control Department at Chief Dealer at Ottoman Bank between Renault Mais A.Ş. between 2005 and 2008. 1998 and 2001. Mr. Güven then served as After working at Alternatif Bank from Dealer in the Treasury Department at Türk 2003 to 2005, he returned to the Bank Ekonomi Bank from 2002 until 2011, and as Internal Control Department Manager. Director of the Treasury Department of the Since 2011, Mr. Çalışkan has been serving same bank between 2011 and 2017. After as the head of Internal Audit at Alternatif starting work as Group Manager in charge Bank. of Treasury at Alternatif Bank in January 2017, Mr. Güven was appointed Deputy Executive Vice President – Treasury in February 2017.

The above-mentioned senior managers are in charge as of 31.12.2017. After this date, the managers that were assigned following the date of issue of this report are below.

Register Name and Surname Function Title Date of Appointment 4605 ESRA BEYZADEOĞLU Information Technologies Executive Vice President 20.02.2018 4614 ÖNDER ÖZCAN Financial Affairs and Planning Executive Vice President 06.03.2018

The table below contains information about the Senior Executives of the Bank, who resigned in 2017.

Register Name and Surname Function Title Ending Date of Employment 3924 Müge Öner Management CEO 01.10.2017 3925 Kağan Gündüz Financial Affairs and Planning Executive Vice President 19.10.2017 3963 Sezin Erken Affluent Banking Executive Vice President 10.04.2017 4021 Tanol Türkoğlu Operations and IT COO 22.10.2017 4077 Mete Hakan Güner Business Banking Executive Vice President 04.12.2017

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LEGISLATION AND COMPLIANCE

As part of its consultancy services, the Legaslation and Compliance Department answers all the questions from Alternatif Bank’s various departments and branches.

It is essential to ensure compliance with the relevant laws The Compliance Unit of Alternatif Bank Regulatory and and regulations put forward by the authorised institutions in Compliance Department is in charge of ensuring the compliance order to perform banking activities. Legislation and Compliance with the Law No. 5549 on Prevention of Laundering Proceeds Department operates under the Board Audit and Compliance of Crime and Law No. 6415 on the Prevention of the Financing Committee and performs legislation follow-up from the Official of Terrorism. They are in charge of ensuring compliance with Gazette and other related institutions’ websites on a daily the obligations relating to terrorism financing prevention and basis. The current legislative amendments are interpreted and laundering proceeds of crime. Within this context, the Legal are announced to the relevant units/departments within the Compliance Department Manager takes the position of the Bank. The action follow-up of the announcements is reported Bank’s Compliance Officer. regularly to the Board Risk Committee. The follow-up letters received from the official institutions (Banking Regulation and Alternatif Bank has established the Bank’s Compliance Policy Supervision Agency, Capital Markets Board, Central Bank of according to the relevant legislation. The establishment of the the Republic of Turkey, Financial Crimes Investigation Board) compliance units, the appointment of a Compliance Officer and and their submissions to the relevant departments are also preparation of the written bank policies and procedures have performed by the Legal Compliance Department. The Bank’s been completed. Monitoring, control, risk management, internal activities being performed and planned to be performed, new audit and training activities are ongoing for prevention of products, projects, advertising and promotional campaigns, and laundering the proceeds of crime. their related processes and documentation are also analysed in terms of compliance with the legislation, the Bank’s internal Alternatif Bank aims to enable the assessment of customers, policies and procedures. transactions and presented services with a risk-based approach, to develop strategies, operational rules and responsibilities for As part of its consultancy services, the Legal Compliance the purpose of mitigating risks to be exposed to within this Department answers all the questions from the Bank’s various scope, to raise the awareness of our employees in this respect departments and branches. and to prevent the risks which the Bank and employees may be exposed to with the help of the constituted policy and procedures.

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INTERNAL CONTROL

In their activities, The Internal Control Department employees abide by the laws, regulations, official communiqués, internal bylaws, announcements and the Bank’s procedures and principles.

Internal Control Department pertaining to the transactions and activities at the Bank, firstly by the employees in charge of implementing them, and then The Internal Control Department carries out its activities under by assigned internal control employees. The Internal Control the Audit Committee and reports to the Board of Directors. Department is authorised to conduct daily/weekly/monthly/ The Internal Control Department, Head Office Control Unit, periodic/instantaneous monitoring, examination and control Branches Control Unit and Basic Controls and Support Units activities at all of the Bank’s branches, Head Office departments are organised under the Internal Control Department. Internal and the Bank’s consolidated subsidiaries. With the purpose of Control employees perform their duties at the head office or monitoring, examining and controlling that all of the Bank’s related departments or branches. Internal Control Department functions are executed securely by using internal control is functionally designed as part of the Bank’s day-to-day mechanisms, Internal Control Department employees request operations. In their activities, The Internal Control Department information that relies on reporting, and conducts controls or employees abide by the laws, regulations, official communiqués, examinations that are based on general or specific observations internal bylaws, announcements and the Bank’s procedures and and monitoring using various control documents and tools. principles. The controls that fall under internal control activities They document their findings in reports or prepare warning are specified below: messages, which are then served on the relevant units. The results of the control work are shared in the form of reports with • Control of operational transactions involved in the execution of the relevant unit / branch managers, the CEO and concerned activities, senior managers, the Board of Directors Audit and Compliance • Control of communication channels and information systems, Committee. Periodical evaluations are performed on the basis of • Control of financial reporting systems, these reports so as to devise and upgrade control systems, and • Verification of the conformity of all of the Bank’s ongoing and to take the necessary measures. planned activities, and its new transactions and products with the Law and other applicable legislation, the Bank’s internal The Coordinatorship, which has 11 employees as of year-end policies and guidelines, as well as banking customs. 2017, carried out the following activities:

Internal Control Department collaborates with the senior • All pre-planned controls at Head Office units and branches managers of relevant units in designing the internal control were completed at the frequency and with the methodology system and internal control activities and how they will be determined beforehand via remote monitoring, performed, paying due regard to the qualities of all operations • IT system controls and control studies were carried out in carried out by the Bank. The Internal Control Department sets subsidiaries that were subject to consolidation, up and runs the structure aimed at the handling of controls • 24 branches were visited and control studies were carried out.

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INTERNAL AUDIT

As of end-2017, the Internal Audit Department employed 14 auditors and assistant auditors. The Department conducts analysis and investigation work in addition to its below referenced duties.

The Internal Audit Department, reporting directly to the The Internal Audit Department, which employs 14 auditors and Board of Directors, audits the activities of Alternatif Bank assistant auditors as of year-end 2017, also carries out enquiries and its subsidiaries for compliance with the Bank’s policies and investigations in addition to the aforementioned functions. and procedures as well as laws and regulations in accordance Audit reports that are drafted following the inspections are with international standards, and assesses the efficacy and classified according to significance and priority and reported to adequacy of the business processes from a risk-oriented the Audit and Compliance Committee of the Board of Directors, perspective. To this end, the Quality Review carried out by the Senior Management, and related units. The action plans independent auditing firm Ernst Young in 2010 had concluded formulated in response to the identified issues are monitored that the Internal Audit Department performs its activities in by the Internal Audit and Compliance Department. The Board compliance with international auditing standards. The Internal of Directors closely monitors the work of the Internal Audit Audit Department was subjected to a new Quality Review by Department in addition to the periodic activity reports presented the independent auditing firm in 2015, which affirmed that through the Audit Committee. the Board continues to execute its tasks in accordance with international auditing standards. During the 2017 operating year, the Internal Audit Department audited the operations and lending processes of 35 branches and 51 processes in Information Technologies audit. Auditions as part of the Management Declaration applications were completed.

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SUMMARY BOARD OF DIRECTORS REPORT SUBMITTED TO THE ANNUAL GENERAL MEETING

Distinguished Shareholders, we respectfully greet our As of 31 December 2017, the Bank’s results on an shareholders, their proxies and our guests who have honoured unconsolidated basis were as follows: the 2017 Annual General Meeting, in which the Bank’s financial Total assets increased 17.43% to TL 19.334 million, statements for 2017 are presented for your perusal and Total loans increased 24.22% to TL 12.866 million, approval. We hereby represent that we have reviewed the Bank’s Total deposits increased 26.74% to TL 11.290 million, 2017 Annual Report and we declare that it does not contain any Shareholders’ equity increased 32.10% to TL 1.618 million, misrepresentations and/or omissions in material aspects which Net profit totalled TL 66 million and the capital adequacy ratio might be misleading, and that it presents a fair and accurate was 18.10%. view of the Bank’s financial standing, including the material risks and uncertainties it is exposed to.

In 2017, Alternatif Bank increased its loan portfolio on solo basis by 24.09% in cash loans while increasing its deposits by 26.74%. We continued our activities to strengthen the support given to the real sector, and to increase the customer penetration in Corporate/Commercial Banking which is our main field of activity. With the support of our strong shareholders, we firmly believe that we are going to achieve the growing targets of our Bank.

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ORGANISATIONAL STRUCTURE

ALTERNATIF BANK HEAD OFFICE ORGANISATION STRUCTURE*

Board Audit and Compliance Committee Board of Directors

Legislation and Internal Audit Internal Control Compliance

CEO

Information Corporate Business Operations Treasury Technologies Banking Banking EVP EVP EVP EVP EVP

As per the Board of Directors’ decision, following changes have been made in the Bank’s organisational structure effective as of 08 February 2018: • Name of the Credit Risk Management function has been changed as Credit Underwriting, and it reports directly to CEO, • Name of the Special Assets Management function has been changed as Restructuring and Legal Follow-up, and it reports directly to the CEO, and • Risk Management department reports directly to the Head of Risk Management who performs his activities with a direct reporting line to the Board Risk Committee.

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Board Credit Committee

Executive Committee of The Board Corporate Affairs Office

Remuneration Committee of the Board

Board Risk Committee

CEO Office Project Management Office Corporate Communication

Chief Risk Officer

Financial Affairs Human Financial Credit Risk Special Assets and Planning Resources Institutions Management Management EVP EVP EVP EVP EVP

Legal Group Risk Mng. Group (Group Head) (Group Head)

As per the Board of Directors’ decision, following changes have been made in the Bank’s organisational structure effective as of 08 February 2018: • Name of the Credit Risk Management function has been changed as Credit Underwriting, and it reports directly to CEO, • Name of the Special Assets Management function has been changed as Restructuring and Legal Follow-up, and it reports directly to the CEO, and • Risk Management department reports directly to the Head of Risk Management who performs his activities with a direct reporting line to the Board Risk Committee.

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EXPLANATIONS AND NOTES ABOUT THE BANK’S RISK GROUP

Associates, Bank’s Direct Other Real and Legal Subsidiaries and and Indirect Persons in the Risk Joint Ventures Shareholders Group Bank’s Risk Group (*) (**) Cash Non-Cash Cash Non-Cash Cash Non-Cash Loans and Other Receivables Beginning Balance 102,576 6,125 - 80,452 18,795 Ending Balance 161,369 2,243 - 249,646 113,277 2,870 Interest and Commission Income (TL Thousand) 9,727 1,047 260 43 2,825 17

Associates, Bank’s Direct Other Real and Legal Subsidiaries and and Indirect Persons in the Risk Bank’s Risk Group (*) Joint Ventures Shareholders Group 31 December 31 December 31 December 31 December 31 December 31 December Deposits 2017 2016 2017 2015 2017 2016 Beginning Balance 110,659 49,552 - 256,033 21,532 94,743 Ending Balance 48,486 110,659 - - 74,207 21,532 Interest Deposit Cost 1,413 4,168 35,904 28,104 1,520 1,250

(*) As defined in Article 49 of the Banking Law no. 5411. (**) The information in the table above includes receivables from banks, as well as loans extended. DIVIDEND POLICY

Principles regarding Alternatif Bank’s profit distribution are formulated in the 66th Article of the Articles of Association of the Bank. Accordingly; net profit is the remaining amount after deducting all types of expenses, provisions and taxes from the revenue obtained by the Bank within an accounting period.

· In accordance with the 519th Article of the Turkish Commercial Code, 5% General Legal Reserve Funds will be set aside from the amount that will be calculated by deducting the previous years’ losses from this profit.

· The Annual General Meeting will take decision to make profit distribution to the shareholders from the remaining amount at a ratio and amount that will be determined in accordance with the Capital Markets Board regulations and the relevant legislation.

· Capital Markets Board regulations will be applicable on this issue while the Annual General Meeting is entitled to partially or completely set aside the remaining amount as Free Reserve Funds or to distribute as dividend to the shareholders. Turkish Code of Commerce provisions on Reserve Funds shall be reserved. As per the provisions of the Law; unless the reserve funds, which must be set aside, are set aside, and unless the dividend, which is determined in the Articles of Association for the shareholders and which must be distributed as per the Capital Markets Board regulations, is set aside; the Annual General Meeting cannot take a decision to set aside other reserve funds or to transfer the profit to the next year.

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INFORMATION ON DONATIONS MADE IN 2017 AND ON EXPENSES INCURRED IN THE SCOPE OF CORPORATE SOCIAL RESPONSIBILITY PROJECTS

Within the scope of Özyeğin University’s programme for “Equal Opportunity in Education”, Alternatif Bank donated TL 750,000, in 2017, to fund for four years 50% of the education expenses of the 25 students who showed high success in the university entrance exams and got into 7 different branches such as engineering, law, and economics.

REMUNERATION PAID TO THE BOARD OF DIRECTORS AND SENIOR MANAGEMENT

At the Bank’s 2016 Annual General Meeting held on 31 March 2017, it was decided to pay Ms. Didem Çerçi, Board Member and Audit Committee Chair, a gross monthly remuneration of TL 50,000, and to pay to the remaining Board Members a net attendance fee of TL 10,000 for each Board meeting and a net attendance fee of TL 4,000 for each committee meeting. The related Annual General Meeting minutes are posted on the Bank’s corporate website. Financial benefits provided by the Bank to the senior management during 2017, including attendance fees, salaries, bonuses and dividends as well as allowances and travel, accommodation and representation expenses reimbursed; and other cash and non-cash benefits such as insurance and other benefits amounted to TL 26,848 thousand.

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MANAGERS OF INTERNAL SYSTEMS

Banking or Date of Industry Name Duty Appointment State of Education Responsibilities Experience Mustafa Mutlu Head of Internal Istanbul University Faculty of Internal Audit 31.10.2011 23 Çalışkan Audit Economics (English) Department

Middle East Technical University- Assistant Head Internal Audit Engin Turan 15.12.2011 Political Science and Public 14 of Internal Audit Department Administration

Tankut Hayri Bogazici University- Management Internal Audit Manager 04.03.2016 10 Çopuroğlu Information Systems Department

Middle East Technical University, Internal Control Internal Control Gürsoy Zorlu 16.06.2017 Faculty of Economy and 11 Coordinator Department Administrative Sciences

Middle East Technical University Legislation and Hamdi İlkay Girgin Manager 15.12.2010 Faculty of Economics / Imperial 16 Compliance College London (MBA)

Middle East Technical University Peder Egemen Faculty of Economics / Humboldt Manager 02.01.2015 Risk Management 15 Baykan University, Berlin (Germany), Economics and Management (MSc)

* Risk Management Group Manager Hamdi Ozan Tuncer resigned on March 03, 2017. AFFILIATION REPORT

As per the 199th Article and the following Articles of the Turkish Code of Commerce n.6102; the Board of Directors of our Bank has submitted the below declaration in the affiliation report issued by the Board regarding its relations with the parent company and affiliates of the parent company.

According to the circumstances known to us, it is understood that; (i) there aren’t any transactions imposed by the parent company and made for the benefit of the parent company or for the benefit of the affiliates of the parent company among any of the transactions made in the activity period 01.01.2017 - 31.12.2017 with our Bank, the parent company, and the affiliates of the parent company, and; (ii) there aren’t any actions taken or avoided to be taken in 2017 for the benefit of the parent company or for the benefit of the affiliates of the parent company. Therefore, we declare that; (i) our Bank did not incur any loss that needs to be compensated due to any transaction made in 2017 activity period; (ii) no disproportional advantage was obtained, and; (iii) there aren’t any benefits or losses in the relations with the parent company or the affiliates of the parent company that would need to be subject to offsetting.

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OUTSOURCED SERVICES PURSUANT TO THE REGULATION ON BANKS’ PROCUREMENT OF SUPPORT SERVICES

RELATED COMPANY NAME DESCRIPTION OF SERVICE DEPARTMENT Maro Uluslararası Bilgi Teknolojileri Danışmanlık Information Geliştirme Destek Hizmetleri San. Tic. Ltd. Şti. Business analyst employment service Technologies V.R.P. Veri Raporlama Programlama Bilişim Software, development, and activation services related to "Alternatif Bank Internet Information Yazılım ve Dan. Hizm. Ticaret A.Ş. Banking and Loan Sales Application Project" Technologies Operations / SWIFT software maintenance and development services / Business analyst employment Information Fineksus Bilişim Çözümleri Ticaret A.Ş. service Technologies Maintenance, which includes changes and updates to the modules and systems of the BID (İHS), RETAIL PAYMENT (PÖS), ADUP2, EFT3, EMKT2 and BASUB systems, EFT2 and ESTS systems, support and modification services. Licensing, Mor Tekn. Yazılım İletişim Bilişim Danışmanlık maintenance, support and modification services to be provided to the Bank in relation to Information ve Enerji San. Tic. Ltd. Şti. the EFT2 and ESTS systems emergency application package. Technologies Active Bilgisayar Hizmetleri ve Ticaret Ltd. Şti. NOVA Securities and NOVA VOB software maintenance services Operations Printing the deliveries on commodities, distributing, and delivering the deliveries of the bank that may vary in weight and Aktif İleti ve Kurye Hizm. A.Ş. size, and returning the received commodities to the Bank Operations Güzel Sanatlar Çek Basım Ltd. Şti. Printing check books and delivering them to the Bank Operations Iron Mountain Arşivleme Hizmetleri A.Ş. Archiving services Operations Desmer Güvenlik Hizmetleri Ticaret A.Ş. Security personnel employment services Operations Aras Kurye Servisi A.Ş. Distributing and delivering the commodities of the Bank Operations ADC & Card Payment Systems Asseco See Teknoloji A.Ş. E-commerce secure payment systems services Department Receiving the loan and credit card payments to be made to the Bank via Halkbank's branch network (payment at the teller’s desk) and alternative distribution channels of Türkiye Halk Bankası A.Ş. Halkbank such as internet banking, ATM, telephone banking (electronic payment) Affluent Banking ADC & Card Teknoser Bilgisayar Teknik Hizmetler San. ve Dış Payment Systems Tic. A.Ş. POS field services Department Printing and enveloping Bank statements, letters and other requested printed documents to be sent by the Bank, producing paper and envelopes, converting them into ADC & Card PDF format in electronic environment, e-mailing them to third parties, printing the legal Payment Systems Hobim Digital Elektronik Hizmetler A.Ş. books upon the request of the Bank, recording, destroying returned commodities Department Transporting documents between the Headquarters and branches or between the Human Resources/ branches, personnel employment services for dealing with the process of delivering ADC & Card Temp Danışmanlık Kuryecilik Sağlık Hizmetleri the receipts and declarations to public institutions, and the procedures in notary and Payment Systems ve Enerji Sanayi Tic. Ltd. Şti. collection offices, recruitment of Call Centre employees. Department Identification of customers resident in Qatar who apply via the Internet to open an account at the Bank. Customer recognition, Receiving necessary documentation from the The Commercial Bank customers. Affluent Banking ADC & Card Payment Systems E-Kart Elektr. Kart Sist. San. Tic. A.Ş. Personalisation and delivery services for raw cards to be ordered by the Bank Department Collectürk Alacak Yönetimi ve Danışmanlık A.Ş. Call services for the Bank’s receivables and directing them for collection Individual Collection Information (Turkcell) - Superonline İletişim Hizmetleri A.Ş. Hosting services for Bank Data Centres (Main and Disaster Data Centre) Technologies

85 ALTERNATİF BANK ANNUAL REPORT 2017

ANNUAL REPORT COMPLIANCE OPINION

CONVENIENCE TRANSLATION OF THE INDEPENDENT AUDITOR’S REPORT RELATED TO BOARD OF DIRECTORS ANNUAL REPORT ORIGINALLY ISSUED IN TURKISH TO ENGLISH

To the Board of Directors of Alternatifbank A.Ş.

1) Opinion

We have audited the annual report of Alternatifbank A.Ş. (“the Bank”) and its consolidated financial affiliates (together will be referred as “the Group”) for the period between 1 January 2017 and 31 December 2017. In our opinion, the consolidated and unconsolidated financial information included in the annual report and the analysis of the Board of Directors about the consolidated and unconsolidated financial position of the Group are consistent, in all material respects, with the audited complete set of consolidated and unconsolidated financial statements and information obtained during the audit and provides a fair presentation.

2) Basis for Opinion

We conducted our audit in accordance with the “Regulation on Independent Audit of the Banks” (“BRSA Auditing Regulation”) published in the Official Gazette Numbered 29314 dated 2 April 2015 by BRSA and the Standards on Auditing which is a component of the Turkish Auditing Standards (“TAS”) issued by the Public Oversight, Accounting and Auditing Standards Authority (“POA”) (“Standards on Auditing issued by POA”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Annual Report section of our report. We declare that we are independent of the Group in accordance with the Code of Ethics for Auditors issued by POA (“POA’s Code of Ethics”) and the ethical requirements in the regulations issued by POA that are relevant to audit of financial statements, and we have fulfilled our other ethical responsibilities in accordance with the POA’s Code of Ethics and regulations. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

3) Auditor’s Opinion on Complete Set of Consolidated and Unconsolidated Financial Statements

We have expressed an unmodified opinion on the complete sets of consolidated and unconsolidated financial statements of the Group for the period between 1 January 2017 and 31 December 2017 on 16 February 2018.

4) Board of Directors’ Responsibility for the Annual Report

In accordance with the Articles 514 and 516 of the Turkish Commercial Code Numbered 6102 (“TCC”) and Regulation on the Principles and Procedures Concerning the Preparation of and Publishing Annual Reports by the Bank (“Regulation”) published in the Official Gazette dated 1 November 2006 and Numbered 26333, the Group’s management is responsible for the following regarding the annual report: a) The Bank’s management prepares its annual report within the first three months following the reporting date of statement of financial position and submits it to the general meeting. b) The Bank’s management prepares its annual report in such a way that it presents accurately, completely, directly, true and fairly the flow of annual operations and consolidated and unconsolidated financial position of the Group. In this report, the financial position of the Bank is assessed in accordance with the Bank’s consolidated and unconsolidated financial statements. The annual report shall also clearly state the details about the Group’s development and risks that might be encountered. The assessment of the board of directors on these matters is included in the report. c) The annual report also includes:

- Significant events after the reporting period,

- The Group’s research and development activities.

- Employee benefits such as wages, premiums and bonuses paid to board members and key management personnel, appropriations, travel, accommodation and representation expenses, cash and cash facilities, insurance and similar guarantees.

When preparing the annual report, the Board of Directors also consider the related regulations issued by the Ministry of Customs and Trade and related institutions.

5) Auditor’s Responsibility for the Audit of the Annual Report

Our objective is to express an opinion on whether the consolidated and unconsolidated financial information included in the annual report and analysis of the Board of Directors in relation to the consolidated and unconsolidated financial position of the Group are consistent with the audited consolidated and unconsolidated financial statements of the Group and the information obtained during the audit and give a true and fair view and form a report that include this opinion in accordance with the TCC and the Regulation.

We conducted our audit in accordance with the BRSA Auditing Regulation and Standards on Auditing issued by POA. Those standards are required that compliance with ethical requirements and planning of audit to obtain reasonable assurance on whether the consolidated and unconsolidated financial information included in the annual report and analysis of the Board of Directors for the consolidated and unconsolidated financial position of the Group are consistent with the consolidated and unconsolidated financial statements and the information obtained during the audit and provides a fair presentation.

KPMG Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik Anonim Şirketi A member firm of KPMG International Cooperative

86 MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES

STATEMENT OF RESPONSIBILITY FOR 2017 ANNUAL REPORT

We hereby represent that we have reviewed the Bank’s 2017 Annual Report and we declare that it does not contain any misrepresentations and/or omissions in material aspects which might be misleading, and that it presents a fair and accurate view of the Bank’s financial standing, including the material risks and uncertainties it is exposed to.

Zafer Kurtul Joseph Abraham Izzat Dajani Board Member and Chairman Board Vice Chairman and Board Member and Member of of Board Audit and Compliance Member of Board Audit and Board Audit and Compliance Committee Compliance Committee Committee

Kaan Gür Boğaç Levent Güven Alper Uzeli Board Member and CEO Treasury Group EVP, and Financial Control Manager Financial Affairs and Planning Acting EVP

87 ALTERNATİF BANK ANNUAL REPORT 2017

IF AN EXTRAORDINARY GENERAL MEETING WAS HELD DURING THE YEAR, INFORMATION ON THE MEETING DATE, RESOLUTIONS AND OTHER ACTIONS TAKEN IN THIS RESPECT

No Extraordinary Annual General Meeting was held for the accounting period of 01.01.2017-31.12.2017.

FINANCIAL POSITION, PROFITABILITY AND SOLVENCY

Alternatif Bank booked a pre-tax profit of TL 81 million, while total assets of the Bank went up 17.43% to TL 19,334 million. In 2017, TL 750 million was donated.

Assets Performance The expansion in the Bank’s assets in 2017 was driven mainly by loans which grew 24.22% year-on-year and constituted 66.55% of total assets. At end-2017, the Bank set aside provisions at a rate of 56.83% for non-performing loans.

Liabilities Performance The Bank’s primary funding source, deposits climbed 26.74% year-on-year, bringing their share in total liabilities up to 58.40%. Shareholders’ equity grew 32.10% to TL 1,618 million. The Bank’s capital adequacy ratio in 2017 was 18.10%.

Profitability Interest income from loans amounted to TL 1,138,285 thousand, while interest expenses paid on deposits were TL 624,728 thousand. The Bank recorded net interest income of TL 487,201 thousand, net fees and commission’s income of TL 52,191 thousand, and operating income of TL 658,823 thousand. The Bank booked net profit of TL 65.963 thousand for 2017.

88 FINANCIAL INFORMATION AND RISK MANAGEMENT

EVALUATION OF THE BANK’S CAPITAL STRENGTH AND BOARD OF DIRECTORS’ ASSESSMENTS

As of year-end 2017, the Bank’s capital adequacy standard ratio on an unconsolidated basis was 18.10%, which is above the minimum regulatory requirements. As a result, the Bank does not have any issues with respect to capital sufficiency, and the Bank’s assets are at a level to cover its liabilities.

ACHIEVEMENT OF TARGETS SET IN PREVIOUS PERIODS, IMPLEMENTATION OF ANNUAL GENERAL MEETING RESOLUTIONS, ANY REASONS FOR FAILURE TO MEET TARGETS OR IMPLEMENT RESOLUTIONS AND ASSESSMENTS

Our Bank achieved a growth above the budget targets set for 2017 as its total assets grew by 17% and reached TL 19.3 Billion. Loans corresponding to 68% of the total assets grew by 24% while the securities which is another significant item in the assets, grew by 9% in parallel to the budget. On the liabilities side, deposits, which are the fundamental source for funding, grew by 27% while the total deposits exceeded TL 11.3 Billion reaching a level above the budget targets. In line with the 2017 plans, our Bank refreshed the USD 225 Million worth of syndication loan by 100%. With the contribution of the growth achieved and the business volume created within the year, our Bank’s net profit reached a level above the budget target as the net profit, which was TL 8.8 Million in 2016, reached TL 66 Million in 2017.

89 ALTERNATİF BANK ANNUAL REPORT 2017

INFORMATION ON SPECIAL AND PUBLIC AUDITS DURING THE FISCAL YEAR

We hereby represent that we have reviewed the Bank’s 2017 Annual Report and we declare that it does not contain any misrepresentations and/or omissions in material aspects which might be misleading, and that it presents a fair and accurate view of the Bank’s financial standing, including the material risks and uncertainties it is exposed to.

ADMINISTRATIVE OR JUDICIAL SANCTIONS IMPOSED ON THE BANK AND THE MEMBERS OF THE BOARD OF DIRECTORS DUE TO ACTIONS IN VIOLATION OF APPLICABLE LAWS

There were no administrative or judicial sanctions imposed on the members of the Board of Directors in 2017 on account of practices in violation of law. In 2017, the Bank paid a total of TL 148,430 in administrative fines under Banking Law No. 5411.

90 FINANCIAL INFORMATION AND RISK MANAGEMENT

LAWSUITS FILED AGAINST THE BANK WITH A POTENTIAL IMPACT ON THE BANK’S FINANCIAL STANDING AND OPERATIONS, AND THEIR POSSIBLE OUTCOMES

In accordance with the precautionary principle, TL 12.2 million has been set aside as provisions for lawsuits initiated against the Bank.

CREDIT RATINGS ASSIGNED TO ALTERNATIF BANK AND RELATED EXPLANATIONS

Fitch Ratings: May 2017 Foreign Currency Long Term BBB- (Stable) Short Term F3 Turkish Lira Long Term BBB- (Stable) Short Term F3 Support Note AAA (tur) (Stable) National Note 2 Financial Capacity Note b+

Moody’s: September 2017 Foreign Currency Long Term Ba2 Short Term NP Turkish Lira Long Term Ba1 Short Term NP National Long Term Aa1.tr National Short Term TR-1 Outlook Negative

91 ALTERNATİF BANK ANNUAL REPORT 2017

FINANCIAL HIGHLIGHTS AND KEY RATIOS FOR THE FIVE-YEAR PERIOD

Consolidated (TL million)

Shareholders’ Paid-in Net Profit/ Loss Year Assets Loans Deposits Equity Paid-in Capital Capital for the Period 31.12.2017 20.785 12.989 11.242 1.681 980 89

31.12.2016 17,591 10,489 8,798 1,265 980 30

31.12.2015 14,065 9,306 6,238 1,015 620 70

31.12.2014 11,348 7,900 5,653 973 620 137

31.12.2013 10,990 6,441 4,981 606 420 71

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ALTERNATİF BANK ANNUAL REPORT 2017 T:+90 212 315 65 00 T:+90 www.alternatifbank.com.tr Cumhuriyet Cad. No:46 Şişli 34367 İstanbul No:46 Cad. Cumhuriyet This report has been published using recycled paper and environment-friendly technologies. This report has been published using recycled paper and environment-friendly